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

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

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

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

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

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Number of shares of common stock outstanding as of May ~~24, 2021~~13, 2022 was ~~****~~3,729,053,805.

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In particular, statements contained in this Quarterly Report on Form 10-Q, including but not limited to, statements regarding the sufficiency of our cash, our ability to finance our operations and business initiatives and obtain funding for such activities; our future results of operations and financial position, business strategy and plan prospects, or costs and objectives of management for future acquisitions, are forward looking statements. These forward-looking statements relate to our future plans, objectives, expectations and intentions and may be identified by words such as ~~“may,~~“may,” ~~“will,~~“will,” “should,” “expects,” “plans,” “anticipates,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “seeks,” “goals,” “estimates,” “predicts,” “potential” and “continue” or similar words. Readers are cautioned that these forward-looking statements are based on our current beliefs, expectations and assumptions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified below, under Part II, Item 1A. ~~“Risk~~ “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, and those identified under Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 filed with the SEC on April ~~15, 2021.~~14, 2022. Therefore, actual results may differ materially and adversely from those expressed, projected or implied in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.

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

FORM 10-Q

ETHEMA HEALTH CORPORATION

TABLE OF CONTENTS

	~~FORM 10-Q~~ ~~ETHEMA HEALTH CORPORATION~~ ~~TABLE OF CONTENTS~~	Page
	~~Page~~
PART I - FINANCIAL INFORMATION
Item l.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of March 31, ~~2021~~2022 (Unaudited) and December 31, ~~2020~~2021	1
	Unaudited Condensed Consolidated Statements of Operations and Comprehensive (loss) Income ~~(Loss)~~ for the three months ended March 31, ~~2021~~2022 and ~~2020~~2021	2
	Unaudited Condensed Consolidated Statements of ~~Stockholder's~~Stockholders’ Deficit for the three months ended March 31, ~~2021~~2022 and ~~2020~~2021	3
	Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, ~~2021~~2022 and ~~2020~~2021	4
	Notes to the Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3328
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3531
Item 4.	Controls and Procedures	3531

	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	3732
Item 1A.	Risk Factors	3732
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3732
Item 3.	Defaults Upon Senior Securities	3732
Item 4.	Mine Safety Disclosures	3732
Item 5.	Other Information	3732
Item 6.	Exhibits	3733
SIGNATURES		3834

ETHEMA HEALTH CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS


	March 31, 2022			December 31, 2021
		(Unaudited)
ASSETS

Current assets
Cash	$	27,024		$	48,822
Accounts receivable, net		291,011			176,011
Prepaid expenses		19,277			29,731
Other current assets		18,406			17,235
Total current assets		355,718			271,799
Non-current assets
Due on sale of subsidiary		5,190			5,115
Property and equipment		3,082,878			3,012,663
Intangible assets, net		1,521,418			1,610,913
Right of use assets		1,590,752			1,653,816
Total non-current assets		6,200,238			6,282,507
Total assets	$	6,555,956		$	6,554,306

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities
Accounts payable and accrued liabilities	$	360,310		$	438,482
Taxes payable		717,665			658,836
Convertible loans, net of discounts		4,831,880			4,891,938
Short term loans		249,522			122,167
Mortgage loans		3,890,306			3,864,312
Government assistance loans		157,367			157,367
Operating lease liability		252,340			241,083
Finance lease liability		7,507			7,386
Derivative liability		278,699			515,901
Accrued dividends		131,072			105,049
Related party payables		2,792,941			2,514,281
Total current liabilities		13,669,609			13,516,802
Non-current liabilities
Government assistance loans		48,015			47,326
Deferred taxation		254,263			273,057
Third party loans		588,562			646,176
Operating lease liability		1,425,018			1,493,431
Finance lease liability		30,951			32,895
Total non-current liabilities		2,346,809			2,492,885
Total liabilities		16,016,418			16,009,687

Preferred stock - Series B; $1.00 par value, 10,000,000 authorized, 400,000 shares outstanding at March 31, 2022 and December 31, 2021.		400,000			400,000

Stockholders’ deficit
Preferred stock - Series A; $0.01 par value, 10,000,000 authorized, 4,000,000 shares outstanding at March 31, 2022 and December 31, 2021.		40,000			40,000
Common stock - $0.01 par value, 10,000,000,000 shares authorized; 3,729,053,805 and 3,579,053,805 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively.		37,290,539			35,790,539
Additional paid-in capital		22,791,350			22,791,350
Discount for shares issued below par value		(27,363,367	)		(26,013,367	)
Accumulated other comprehensive income		851,049			816,532
Accumulated deficit		(44,302,371	)		(44,103,311	)
Stockholders’ deficit attributable to Ethema Health Corporation stockholders		(10,692,800	)		(10,678,257	)
Non-controlling interest		832,338			822,876
Total stockholders’ deficit		(9,860,462	)		(9,855,381	)
Total liabilities and stockholders’ deficit	$	6,555,956		$	6,554,306

March 31,
2021
December 31, 2020
(Unaudited)
ASSETS

Current assets
Cash $ 35,230 $ 90,500
Accounts receivable, net 3,113 3,075
Prepaid expenses 1,040 19,190
Other current assets 135,467 131,938
Other investments 1,026,669 690,449
Total current assets 1,201,519 935,152
Non-current assets
Due on sale of subsidiary 5,157 5,094
Property and equipment 2,885,861 2,882,220
Total non-current assets 2,891,018 2,887,314
Total assets $ 4,092,537 $ 3,822,466

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities
Accounts payable and accrued liabilities $ 798,948 $ 833,615
Taxes payable 870,843 850,277
Convertible loans, net of discounts 4,579,133 4,200,217
Short term loans 118,382 115,375
Mortgage loans 118,538 115,704
Government assistance loans 156,782 156,782
Derivative liability 4,379,372 4,765,387
Accrued dividends 36,377 15,594
Related party payables 2,815,450 2,811,849
Total current liabilities 13,873,825 13,864,800
Non-current liabilities
Government assistance loans 47,714 31,417
Third party loans 731,629 704,271
Mortgage loans, net of current portion 3,865,866 3,848,077
Total non-current liabilities 4,645,209 4,583,765
Total liabilities 18,519,034 18,448,565

Preferred stock - Series B; $0.0001 par value, 10,000,000 authorized, 400,000 outstanding as of March 31, 2021 and December 31, 2020, respectively. 400,000 400,000

Stockholders’ deficit
Preferred stock - Series A; $0.01 par value, 10,000,000 authorized, 4,000,000 outstanding at March 31, 2021 and December 31, 2020, respectively 40,000 40,000
Common stock - $0.01 par value, 10,000,000,000 shares authorized; 2,262,849,130 and 2,207,085,665 shares issued and outstanding as of March 31, 2021 and December 31, 2020. 22,628,492 20,270,857
Additional paid-in capital 24,649,099 23,344,885
Discount for shares issued below par value (18,821,629 ) (17,728,779 )
Accumulated other comprehensive income 836,325 806,719
Accumulated deficit (44,858,784 ) (42,459,781 )
Total stockholders’ deficit (15,526,497 ) (15,726,099 )
Minority shareholders interest 700,000 700,000
Total stockholders’ deficit (14,826,497 ) (15,026,099 )
Total liabilities and stockholders’ deficit $ 4,092,537 $ 3,822,466

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

ETHEMA HEALTH CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE ~~LOSS~~INCOME (LOSS)

Three months ended March 31, 2021 Three months ended
March 31, 2020

Revenues $ 90,793 $ 83,542

Operating expenses
General and administrative 5,503 22,536
Rental expense 1,500 1,000
Professional fees 36 108,021
Salaries and wages 12,852 12,351
Depreciation 32,125 30,241
Total operating expenses 52,016 174,149

Operating income (loss) 38,777 (90,607 )

Other Income (expense)
Loss on conversion of convertible debentures (1,106,648 ) (286,343 )
Penalty on convertible notes (9,240 ) —
Fair value of warrants granted to convertible debt holders (976,788 ) —
Exercise of warrants (90,000 ) (92,952 )
Interest income —   60
Interest expense (137,677 ) (193,922 )
Debt discount (502,677 ) (403,677 )
Derivative liability movement 495,589 (9,754,896 )
Foreign exchange movements (79,492 ) 484,051
Net loss before taxation (2,368,156 ) (10,338,286 )
Taxation —   —
Net loss (2,368,156 ) (10,338,286 )
Preferred stock dividend (30,847 ) —
Net loss available to ordinary shareholders (2,399,003 ) (10,338,286 )
Accumulated other comprehensive income (loss)
Foreign currency translation adjustment 29,606 (185,813 )
Total comprehensive loss $ (2,369,397 ) $ (14,865,276 )

Basic and diluted loss per common share $ (0.00 ) $ (0.01 )
Weighted average common shares outstanding – Basic and diluted 2,143,692,378 956,540,071


	Three months ended March 31, 2022			Three months ended March 31, 2021

Revenues	$	1,023,315		$	90,793

Operating expenses
General and administrative		209,932			5,503
Rent expense		90,031			1,500
Management fees		30,000			—
Professional fees		49,587			36
Salaries and wages		436,825			12,852
Depreciation expense		132,000			32,125
Total operating expenses		948,375			52,016

Operating Income		74,940			38,777

Other (expense) income
Other income		10,018			—
Warrants exercised		—			(90,000	)
Fair value of warrants granted to convertible note holders		—			(976,788	)
Penalty on convertible notes		—			(9,240	)
Interest expense		(80,768	)		(137,677	)
Amortization of debt discount		(252,832	)		(502,677	)
Derivative liability movement		197,476			(611,059	)
Foreign exchange movements		(95,556	)		(79,492	)
Net loss before taxation		(146,722	)		(2,368,156	)
Taxation		(18,263	)		—
Net loss		(164,985	)		(2,368,156	)
Net income attributable to non-controlling interest		(9,462	)		—
Net loss attributable to Ethema Health Corporation Stockholders’		(174,447	)		(2,368,156	)
Preferred stock dividend		(24,613	)		(30,847	)
Net loss available to common shareholders of Ethema Health Corporation		(199,060	)		(2,399,003	)
Accumulated other comprehensive income
Foreign currency translation adjustment		34,517			29,606

Total comprehensive loss	$	(164,543	)	$	(2,369,397	)

Basic and diluted loss per common share	$	(0.00	)	$	(0.00	)
Weighted average common shares outstanding – Basic and diluted		3,630,720,472			2,143,692,378

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

ETHEMA HEALTH CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

Series A Preferred Common
Shares Amount Shares Amount Additional Paid in Capital Discount to par value Comprehensive Income Accumulated Deficit
Minority
shareholders interest
Total
Balance as of December 31, 2020 4,000,000 $ 40,000 2,027,085,665 $ 20,270,857 $ 23,344,885 $ (17,728,779 ) $ 806,719 $ (42,459,781 ) $ 700,000 $ (15,026,099 )
Fair value of warrants issued to convertible debt holders —   —   —   —   1,207,214 —   —   —   —   1,207,214
Warrants exercised —   —   59,999,999 600,000 —   (510,000 ) —   —   —   90,000
Conversion of convertible notes —   —   175,763,466 1,757,635 97,000 (582,850 ) —   —   —   1,271,785
Foreign currency translation —   —   —   —   —   —   29,606 —   —   29,606
Net loss —   —   —   —   —   —   (2,368,156 ) —   (2,368,156 )
Dividends accrued —   —   —   —   —   —   —   (30,847 ) —   (30,847 )
Balance as of March 31, 2021 4,000,000 $ 40,000 2,262,849,130 $ 22,628,492 $ 24,649,099 $ (18,821,629 ) $ 836,325 $ (44,858,784 ) 700,000 $ (14,826,497 )
Series A Preferred Common
Shares Amount Shares Amount Additional Paid in Capital Discount to par value Comprehensive Income Accumulated Deficit
Minority
shareholders interest
Total
Balance as of December 31, 2019 —   $ —   155,483,897 $ 1,554,838 $ 23,188,527 $ —   $ 727,976 $ (45,491,885 ) —   $ (20,020,544 )
Warrants exercised —   —   103,000,000 1,030,000 —   (937,048 ) —   —   —   92,952
Shares issued for commitment fees —   —   2,700,000 27,000 138,780 —   —   —   —   165,780
Conversion of convertible notes —   —   1,316,679,078 13,166,792 —   (12,635,787 ) —   —   —   531,005
Foreign currency translation —   —   —   —   —   —   (185,813 ) —   —   (185,813 )
Net loss —   —   —   —   —   —   —   (10,338,286 ) —   (10,338,286 )
Balance as of March 31, 2020 —   $ —   1,577,862,975 $ 15,778,630 $ 23,327,307 $ 13,572,835 $ 542,163 $ 55,830,171 —   $ (29,754,906 )

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



	Series A Preferred				Common
	Shares		Amount		Shares		Amount		Additional Paid in Capital		Discount to par value			Comprehensive Income		Accumulated Deficit			Non-controlling		Total
																			shareholders interest
Balance as of December 31, 2021		4,000,000	$	40,000		3,579,053,805	$	35,790,539	$	22,791,350	$	(26,013,367	)	$	816,532	$	(44,103,311	)	$	822,876	$	(9,855,381	)
Conversion of convertible notes		—		—		150,000,000		1,500,000		—		(1,350,000	)		—		—			—		150,000
Foreign currency translation		—		—		—		—		—		—			34,517		—			—		34,517
Net loss		—		—		—		—		—					—		(174,447	)		9,462		(164,985	)
Dividends accrued		—		—		—		—		—		—			—		(24,613	)		—		(24,613	)
Balance as of March 31, 2022		4,000,000	$	40,000		3,729,053,805	$	37,290,539	$	22,791,350	$	(27,363,367	)	$	851,049	$	(44,302,371	)	$	832,338	$	(9,860,462	)



	Series A Preferred				Common
	Shares		Amount		Shares		Amount		Additional Paid in Capital		Discount to par value			Comprehensive Income		Accumulated Deficit			Non-controlling		Total
																			shareholders interest
Balance as of December 31, 2020		4,000,000	$	40,000		2,027,085,665	$	20,270,857	$	23,344,885	$	(17,728,779	)	$	806,719	$	(42,459,781	)	$	7,00,000	$	(15,026,099	)
Fair value of warrants issued to convertible debt holders		—		—		—		—		1,207,214		—			—		—			—		1,207,214
Warrants exercised		—		—		59,999,999		6,00,000		—		(510,000	)		—		—			—		90,000
Conversion of convertible notes		—		—		175,763,466		1,757,635		97,000		(582,850	)		—		—			—		1,271,785
Foreign currency translation		—		—		—		—		—		—			29,606		—			—		29,606
Net loss		—		—		—		—		—					—		(2,368,156	)		—		(2,368,156	)
Dividends accrued		—		—		—		—		—		—			—		(30,847	)		—		(30,847	)
Balance as of March 31, 2021		4,000,000	$	40,000		2,262,849,130	$	22,628,492	$	24,649,099	$	(18,821,629	)	$	836,325	$	(44,858,784	)	$	700,000	$	(14,826,497	)

~~ETHEMA HEALTH CORPORATION~~

~~UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS~~

Three months ended March 31, 2021 Three months ended March 31, 2020
Operating activities
Net loss $ (2,368,156 ) $ (10,338,286 )
Adjustment to reconcile net loss to net cash (used in) operating activities:
Depreciation 32,125 30,241
Exercise of warrants 90,000 92,952
Fair value of warrants granted to convertible debt holders 976,788 —
Loss on conversion of convertible debentures 1,106,648 286,343
Stock based compensation for services —   165,780
Amortization of debt discount 502,677 403,677
Derivative liability movements (495,589 ) 9,754,896
Non-cash interest accrual on escrow deposit —   (23 )
Changes in operating assets and liabilities
Accounts receivable —   49,007
Prepaid expenses and other current assets 14,638 3,000
Accounts payable and accrued liabilities 50,330 75,296
Taxes payable 12,983 10,861
Net cash (used in) provided by operating activities (77,556 ) 533,744
Investing activities
Investment in promissory note —   (15,537 )
Deposits refunded —   5,995
Other investments (336,220 ) —
Net cash used in investing activities (336,220 ) (9,542 )

Financing activities
Decrease in bank overdraft —   (11,079 )
Repayment of mortgage (28,631 ) (25,855 )
Proceeds from convertible notes 340,000 —
Repayment of convertible notes (35,000 ) —
Proceeds from government assistance loans 15,797 —
Repayment of related party notes (12,985 ) —
Proceeds from related party notes —   19,362
Net cash provided by (used in) financing activities 279,181 (17,572 )

Effect of exchange rate on cash 79,325 (507,665 )

Net change in cash (55,270 ) (1,035 )
Beginning cash balance 90,500 2,975
Ending cash balance $ 35,230 $ 1,940

Supplemental cash flow information
Cash paid for interest $ 41,344 $ 41,504
Cash paid for income taxes $ —   $ —

Non-cash investing and financing activities
Conversion of debt to equity $ 165,137 $ 531,005
Fair value of warrants issued $ 230,426 $ —

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

ETHEMA HEALTH CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS


	Three months ended March 31, 2022			Three months ended March 31, 2021
Operating activities
Net loss	$	(164,985	)	$	(2,368,156	)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense		132,000			32,125
Fair value of warrants granted		—			976,788
Amortization of debt discount		252,832			502,677
Derivative liability movements		(197,476	)		611,059
Exercise of warrants		—			90,000
Amortization of right of use asset		63,064			—
Deferred taxation movement		(18,794	)		—
Changes in operating assets and liabilities
Accounts receivable		(115,000	)		—
Prepaid expenses		10,456			14,638
Other current assets		(1,171	)		—
Accounts payable and accrued liabilities		(22,013	)		50,330
Operating lease liabilities		(57,156	)		—
Taxes payable		49,169			12,983
Net cash used in operating activities		(69,074	)		(77,556	)

Investing activities
Other investments		—			(336,220	)
Purchase of property and equipment		(72,858	)		—
Net cash used in investing activities		(72,858	)		(336,220	)

Financing activities
Repayment of mortgage		(29,850	)		(28,631	)
Proceeds from convertible notes		—			340,000
Repayment of convertible notes		(201,733	)		(35,000	)
Proceeds from promissory notes		100,000			—
Proceeds from government assistance loans		—			15,797
Repayment of third party loans		(78,977	)		—
Repayment of finance leases		(1,822	)		—
Proceeds from related party notes		259,228			—
Repayment of related party notes		—			(12,985	)
Net cash provided by financing activities		46,846			279,181

Effect of exchange rate on cash		73,288			79,325

Net change in cash		(21,798	)		(55,270	)
Beginning cash balance		48,822			90,500
Ending cash balance	$	27,024		$	35,230

Supplemental cash flow information
Cash paid for interest	$	43,304		$	41,344
Cash paid for income taxes	$	—		$	—

Non-cash investing and financing activities
Fair value of warrant issued	$	—		$	230,426
Conversion of convertible notes	$	150,000		$	165,137

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

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.	Nature of business

~~Ethema Health Corporation (the “Company”) was incorporated under the laws of the state of Colorado, USA, on April 1, 1993. Effective April 4, 2017,~~Since 2010, the Company ~~changed its name to Ethema Health Corporation and prior to that, on May 2012,~~has operated addiction treatment centers. Initially the Company ~~had changed~~operated an addiction treatment center in Ontario Canada under its ~~name to Greenstone Healthcare Corporation from Nova Natural Resources Corporation. As of December 31, 2017,~~Greenestone Muskoka clinic, which was sold on February 14, 2017. Simultaneously with this sale the Company ~~owned 100% of the outstanding shares of Greenstone Clinic Muskoka Inc., incorporated~~purchased buildings and operated an addiction treatment center in ~~2010~~Delray Beach Florida 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;~~its Addiction ~~Recovery~~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~~subsidiary with a license obtained in December 2016, ~~the Company obtained a license to operate and provide addiction treatment healthcare services~~initially though owned properties in ~~Florida, USA. The company commenced operations under this license with effect from January 2017.~~

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

~~The Share Purchase Agreement~~

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

~~The Asset Purchase Agreement and Lease~~

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

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

~~The Florida Purchase~~

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

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

and subsequently though leased properties in West Palm Beach, Florida. Since June 30, 2020, the Company has been actively involved in the ~~operation~~management of ~~the~~a treatment center operated by Evernia ~~Health Center LLC (“Evernia”) at 950 Evernia Street,~~in West Palm Beach Florida. On July 1, 2021, the Company closed on the acquisition of 75% of ATHI, which owns 100% of Evernia, once the probationary approval of a license was obtained from the Department of Children and Family Services of Florida. Evernia is the only active treatment center operated by the Company.

The Company ~~is under contract to purchase a majority interest in this company and has been financing~~also owns the ~~startup operations of this facility. This operation will be the Company’s only~~real estate on which its Greenstone Muskoka clinic operated. The current tenant operates an addiction treatment center ~~operating and expects the purchase of the majority interest to close in the second quarter of 2021.~~ on these premises. The Company collects rent on this property, which is treated as a separate business segment.

~~ETHEMA HEALTH CORPORATION~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

2.	Summary of significant accounting policies

Financial Reporting

The (a) unaudited condensed consolidated balance sheets as of March 31, ~~2021,~~2022, which have been derived from the unaudited condensed consolidated financial statements, and as of December 31, ~~2020,~~2021, which have been derived from audited consolidated financial statements, and (b) the unaudited condensed consolidated statements of operations, stockholders’ deficit and cash flows of the Company, have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, ~~2021~~2022 are not necessarily indicative of results that may be expected for the year ending December 31, ~~2021.~~2022. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, ~~2020,~~2021, filed with the Securities and Exchange Commission (“SEC”) on April ~~15, 2021.~~14, 2022.

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

Use of Estimates

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

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2.	b)Summary of significant accounting policies (continued)

Principals of consolidation and foreign currency translation

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

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

●

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

●

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

●

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

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

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

The relevant translation rates are as follows: For the three months ended March 31, 2022, a closing rate of CDN$1.0000 equals US$0.8003 and an average exchange rate of CDN$1.0000 equals US$0.78980. For the three months ended March 31, 2021, a closing rate of ~~CDN$~~CAD$1.0000 equals US$0.7952 and an average exchange rate of ~~CDN$~~CAD$1.0000 equals US$0.7899. ~~For the three months ended March 31, 2020, a closing rate of CAD$1.0000 equals US$0.7049 and an average exchange rate of CAD$1.0000 equals US$0.7435.~~

~~ETHEMA HEALTH CORPORATION~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Summary of significant accounting policies (continued)~~c)

Business Combinations

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

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

c)d)

~~Revenue Recognition~~

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

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

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

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

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

Settlements with third-party payors are estimated and recorded in the period in which the related services are rendered and are adjusted in future periods as final settlements are determined. In the opinion of management, adequate provision has been made for any adjustments and final settlements. However, there can be no assurance that any such adjustments and final settlements will not have a material effect on the Company’s financial condition or results of operations. The Company’s receivables were $3,113 and $3,075 for the three months ended March 31, 2021 and for the year ended December 31, 2020, respectively. Management believes that these receivables are properly stated and are not likely to be settled for a significantly different amount.

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

~~identify the contract with a customer;~~

~~ii.~~

~~identify the performance obligations in the contract;~~

~~iii.~~

~~determine the transaction price;~~

~~iv.~~

~~allocate the transaction price to performance obligations in the contract; and~~

~~recognize revenue as the performance obligation is satisfied.~~

~~ETHEMA HEALTH CORPORATION~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

2.	~~Summary of significant accounting policies (continued)~~

Cash and cash equivalents

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

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

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~Accounts receivable~~Summary of significant accounting policies (continued)

Accounts receivable

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

Allowance for Doubtful Accounts, Contractual and Other Discounts

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

~~Financial instruments~~Property and equipment

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

Intangible assets

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

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

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

Leases

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

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2.	Summary of significant accounting policies (continued)

Derivatives

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

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

Financial instruments

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

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

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

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

~~ETHEMA HEALTH CORPORATION~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

2.	~~Summary of significant accounting policies (continued)~~

~~Financial instruments (continued)~~

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

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

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

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~Property and equipment~~Summary of significant accounting policies (continued)

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

i)l)

~~Leases~~Related parties

~~The Company accounts for leases in terms of AC 842 whereby leases~~Parties are ~~classified as either capital or operating leases. Leases that transfer substantially all of the benefits and inherent risks of ownership of property~~considered to be related to the Company if the parties directly or indirectly, through one or more intermediaries, control, are ~~accounted~~controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions are recorded at fair value of the goods or services exchanged.

Revenue Recognition

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

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

Settlements with third-party payors are estimated and recorded ~~together with its~~in the period in which the related ~~long-term obligation to reflect~~services are rendered and are adjusted in future periods as final settlements are determined. In the ~~acquisition~~opinion of management, adequate provision has been made for any adjustments and ~~financing. Equipment recorded under capital leases is amortized~~final settlements. However, there can be no assurance that any such adjustments and final settlements will not have a material effect on the ~~same basis as described above. Operating leases~~Company’s financial condition or results of operations. The Company’s receivables were $291,011and $176,011 at March 31, 2022 and December 31, 2021, respectively. Management believes that these receivables are properly stated and are not likely to be settled for a significantly different amount.

The Company’s revenues are recognized onwhen control of the ~~balance sheet~~promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those services. The Company derives its revenues from the sale of its services. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as ~~a lease liability with a corresponding right~~it fulfills its obligations under each of ~~use asset for all leases with a term that is more than twelve months. Payments under operating leases are expensed as incurred.~~its revenue transactions:

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

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2.	Summary of significant accounting policies (continued)

Income taxes

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

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

~~ETHEMA HEALTH CORPORATION~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

2.	~~Summary of significant accounting policies (continued)~~

Net income (loss) per Share

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

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

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

l)p)

Stock based compensation

Stock based compensation cost is measured at the grant date, based on the estimated fair value of the award and is recognized as expense over the employee’s requisite service period or vesting period on a straight-line basis. Share-based compensation expense recognized in the consolidated statements of operations 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.~~

~~Derivatives~~

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2.	Summary of significant accounting policies (continued)

n)q)

~~Recent accounting pronouncements~~

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

Financial instruments Risks

The Company is exposed to various risks through its financial instruments. The following analysis provides a measure of the Company’s risk exposure and concentrations at ~~the balance sheet date,~~ March 31, ~~2021~~2022 and December 31, ~~2020.~~2021.

Credit risk

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

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

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

ii.

Liquidity risk

Liquidity risk is the risk the Company will not be able to meet its financial obligations as they fall due. The Company is exposed to liquidity risk through its working capital deficiency of ~~$12,672,306,~~$13,313,891, which includes derivative liabilities of ~~$4,379,372,~~$278,699, and an accumulated deficit of ~~$44,858,784.~~$44,302,371. The Company is dependent upon the raising of additional capital in order to implement its business plan. There is no assurance that the Company will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on the Company’s financial condition. In the opinion of management, liquidity risk is assessed as high, material and remains unchanged from that of the prior year.

iii.

Market risk

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

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk on its convertible debt, mortgage loans, short term loans, third party loans and government assistance loans as of March 31, ~~2021.~~2022. In the opinion of management, interest rate risk is assessed as moderate.

Currency risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company is subject to currency risk as it has subsidiaries that operate in Canada and are subject to fluctuations in the Canadian dollar. A substantial portion of the Company’s financial assets and liabilities are denominated in Canadian dollars. Based on the net exposures at March 31, ~~2021,~~2022, a 5% depreciation or appreciation of the Canadian dollar against the U.S. dollar would result in an approximate ~~$4,526~~$4,164 increase or decrease in the Company’s after tax net income from operations. The Company has not entered into any hedging agreements to mitigate this risk. In the opinion of management, currency risk is assessed as low, material and remains unchanged from that of the prior year.

Other price risk

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

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3.2.	~~Going concern~~Summary of significant accounting policies (continued)

Recent accounting pronouncements

In August 2020, the Financial Accounting Standard board (“FASB”) issued ASU 2020-06 "Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40) ("ASU 2020-06"). The update simplifies the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting models and limiting the number of embedded conversion features separately recognized from the primary contract. The guidance also includes targeted improvements to the disclosures for convertible instruments and earnings per share. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company is assessing the impact, if any, on the adoption of this update on the Company's consolidated financial statements.

Comparative and prior period disclosures

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

3.	Going concern

The Company’s condensed consolidated financial statements have been prepared in accordance with US GAAP applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations in the normal course of business. ~~As at~~At March 31, ~~2021~~2022 the Company has a working capital deficiency of ~~$12,672,306,~~$13.3 million, including derivative liabilities of ~~$4,379,372~~$0.3 million and ~~accumulated deficit~~total liabilities in excess of ~~$44,858,784.~~assets in the amount of $9.5 million. Management believes that current available resources will not be sufficient to fund the Company’s planned expenditures over the next 12 months. Accordingly, the Company will be dependent upon the raising of additional capital through placement of common shares, and/or debt financing in order to implement its business plan and generating sufficient revenue in excess of costs. If the Company raises additional capital through the issuance of equity securities or securities convertible into equity, stockholders will experience dilution, and such securities may have rights, preferences or privileges senior to those of the holders of common stock or convertible senior notes. If the Company raises additional funds by issuing debt, the Company may be subject to limitations on its operations, through debt covenants or other restrictions. If the Company obtains additional funds through arrangements with collaborators or strategic partners, the Company may be required to relinquish its rights to certain geographical areas, or techniques that it might otherwise seek to retain. There is no assurance that the Company will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on the Company’s financial condition. These condensed consolidated financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue ~~operations.~~

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

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

4.	~~Other current assets~~Acquisition of subsidiaries

~~Other current assets includes the following:~~

On February 25, 2019, the Company entered into a Letter of Intent whereby it would purchase a 33.33% interest in Local Link Wellness, LLC (“LLW”) for gross proceeds of $400,000. LLW proposes to provide a comprehensive addiction treatment program to large employee groups. The company has advanced LLW a total of $120,000 at March 31, 2021. These funds were advanced as short-term promissory notes that are immediately due and payable and are classified as other current assets on our consolidated balance sheet.

The Company has no intention to close on the purchase of LLW and is currently negotiating with the vendors to provide advertising services in lieu of the return of the $120,000 invested by the Company.

~~ETHEMA HEALTH CORPORATION~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

5.	~~Other investments~~

On June 30, 2020, the Company entered into an agreement whereby the Company ~~will~~agreed to acquire 51% of American Treatment Holdings, Inc. (“ATHI”) from The Q Global Trust (“Seller”) and Lawrence B Hawkins (“Hawkins”), which in turn owns 100% of Evernia Health Services LLC. (“Evernia”), which operates drug rehabilitation facilities. The consideration for the acquisition iswas a loan to be provided by the purchaser to Evernia in the amount of $500,000. As of ~~March 31,~~the date of acquisition, July 1, 2021, the Company had advanced Evernia approximately ~~$1,026,669 including accrued interest thereon.~~$1,140,985.

The Company originally had a 180 day option, from the advancement of the first tranche to Evernia, to purchase an additional 9% of ETHI for a purchase consideration of $50,000. ~~The option has been extended and the Company had made a down payment of $10,000 towards exercising this option.~~

On April 28, 2021, the Stock Purchase Agreement date June 30, 2020 between the Company ~~entered into an agreement whereby~~and the ~~Company will acquire 51% of Behavioral Health Holdings, Inc. (“BHHI”) from The~~ Q Global Trust, ~~(“Seller”)~~ and ~~Lawrence B Hawkins, which in turn owns 100%~~ATHI was amended whereby the option to purchase an additional 9% of ~~Peace~~ATHI for $50,000 was amended to purchase an additional 24%, an increase of ~~Mind Counseling Services, Inc. (“PMCS”), which operates drug rehabilitation facilities.~~15% over the prior option, for 100,000,000 shares of common stock. The ~~consideration~~remaining condition to closing, the receipt of approval for the ~~acquisition is still to be determined.~~change of ownership of the license from the Department of Children and Family Services of Florida, was satisfied by the probationary approval, which was received on June 30, 2021. The Company ~~is currently considering its options~~exercised the option and issued the 100,000,000 shares of common stock and paid $42,500 of the $50,000 due to ~~acquire a stake~~the Seller, in ~~BHHI and may renegotiate~~terms of the ~~deal terms.~~

~~On July 12, 2020,~~amended agreement as of the ~~Company entered into a five year option agreement with Leonite Capital LLC (“Leonite”) and other investors (collectively~~date of this report. In addition to the ~~“Transferees”),~~consideration paid for the additional equity the Company agreed to ~~sell to Leonite~~execute a ~~portion~~promissory note for the payment of any unpaid management fees at the time of Closing such that the unpaid fees shall be paid pari-passu with the repayment of the total outstanding shares of ATHI from the shares of ATHI held by the company. The Company provided Leonite an option to purchase a 33% of ATHI from the Company for a purchase consideration of $0.0001 per share, based on the advancesLoan Agreement and Seller agrees that ~~Leonite made~~any funds advanced to the Company ~~totaling $655,000. Leonite~~by Behavioural Health Holdings, LLC shall ~~share in all distributions by ATHI~~be forgiven and considered contributed capital to ~~the Company, on an as exercised basis, equal to the advances made by Leonite to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option.~~

~~On September 14, 2020, the Company entered into a five year option agreement with Ed Blasiak (“Blasiak”) whereby the Company agreed to sell to Blasiak a portion of the total outstanding shares of~~ ATHI. The Company ~~provided Blasiak an option~~agrees to ~~purchase 2.5%~~advance up to $1,100,000 under the Loan Agreement for the funding of the operations of ATHI ~~from~~as required without any contribution required by the ~~Company~~Seller.

Pursuant to the terms of the Purchase Agreement, the consideration paid for 75% of the equity of ATHI was $50,000 in cash plus the issuance of 100,000,000 shares of the Company’s common stock with a ~~purchase consideration~~market value of ~~$0.0001 per share, based~~$410,000 on the ~~advances that Blasiak made~~date of acquisition.

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4.	Acquisition of subsidiaries (continued)

In terms of the agreement, the preliminary purchase price was allocated to the ~~Company totaling $50,000. Blasiak shall share~~fair market value of tangible and intangible assets acquired and liabilities assumed as follows:

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

The amount of revenue and earnings include in ~~all distributions by ATHI to~~ the ~~Company, on an as exercised basis, equal to~~Company’s condensed consolidated statements of operations and comprehensive income (loss) for the ~~advances made by Blasiak to~~three months ended March 31, 2022 and the ~~Company, thereafter the option will be reduced to 50%~~revenue and earnings of the ~~shares exercisable under~~combined entity had the ~~option.~~acquisition date been January 1, 2021.

Schedule of revenue and earnings
	Revenue		Earnings

Actual from January 1, 2022 to March 31, 2022	$	991,941	$	84,070

2021 Supplemental pro forma from January 1, 2021 to March 31, 2021	$	495,081	$	(2,651,152	)

~~On October 29, 2020, the Company entered into a five year option agreement with First Fire whereby the Company agreed~~The 2021 Supplemental pro forma earnings information was adjusted to ~~sell to First Fire a portion~~account for amortization of ~~the total outstanding shares~~intangibles on acquisition of ATHI. The Company provided First Fire an option to purchase 6.25% of ATHI from the Company for a purchase consideration of $0.0001 per share, based on the advances that First Fire made to the Company totaling $125,000. First Fire shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by First Fire to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option.$89,495.

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

6.5.	Due on sale of business

On February 14, 2017, the Company sold its Canadian Rehab Clinic for gross proceeds of CDN$10,000,000, of which CDN$1,500,000 had been retained in an escrow account for a period of up to two years in order to guarantee the warranties provided by the Company in terms of the APA. As of March 31, ~~2021,~~2022, CDN$1,055,042 of the escrow had been refunded to the Company and CDN$461,318 had been used to affect building improvements to the premises owned by CCH, for a total reduction of CDN$1,516,360. The remaining escrow balance was CDN$6,485 (approximately US$ ~~5,157)~~5,190).

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7.6.	Property and equipment

Property and equipment consists of the following:

Schedule of sale of property

	March 31, 2021							December 31, 2020		March 31, 2022							December 31, 2021
	Cost		Accumulated depreciation			Net book value		Net book value		Cost		Accumulated depreciation			Net book value		Net book value
Land	$	170,974	$	—		$	170,974	$	168,866	$	172,055	$	—		$	172,055	$	168,585
Property		3,234,310		(519,423	)		2,714,887		2,713,354		3,254,757		(652,897	)		2,601,860		2,596,590
Leasehold improvements											237,015		(17,718	)		219,297		153,730
Furniture and fittings											53,556		(11,589	)		41,967		42,140
Vehicles											55,949		(9,478	)		46,471		49,268
Computer equipment											1,450		(222	)		1,228		1,350
	$	3,405,284	$	(519,423	)	$	2,885,861	$	2,882,220	$	3,774,782	$	(691,904	)	$	3,082,878	$	3,012,663

Depreciation expense for the three months ended March 31, 2022 and 2021 was $132,000and ~~2020 was $32,125 and $30,241,~~$32,125, respectively.

8.7.

~~Taxes~~ ~~Payable~~Intangibles

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

Intangible assets consist of the following:

Schedule of Intangible assets
	March 31, 2022							December 31, 2021
	Cost		Accumulated amortization			Net book value		Net book value
Health care Provider license	$	1,789,903	$	(268,485	)	$	1,521,418	$	1,610,913

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

The Company recorded $89,495 in amortization expense for finite-lived assets for the three months ended March 31, 2022.

8.	Leases

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

Schedule of Right of use assets
	March 31, 2022		December 31, 2021
Non-current assets
Right-of-use assets – finance leases, net of depreciation, included in Property and equipment	$	46,471	$	49,268
Right-of-use assets - operating leases, net of amortization	$	1,590,752	$	1,653,816

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8.	Leases (continued)

Lease costs consists of the following:

Schedule of Lease costs
	Three months ended March 31,
	2022		2021
Finance lease cost:
Amortization of right-of-use assets	$	2,797	$	—
Interest expense on finance lease liabilities		648		—
Finance lease cost		3,445		—

Operating lease cost	$	63,064	$	—
Lease cost	$	63,064	$	—

Other lease information:

Schedule of Other lease
	Three months ended March 31,
	2022			2021
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases	$	(1,809	)	$	—
Operating cash flows from operating leases		(63,064	)		—
	$	(64,873	)	$	—

Weighted average lease term – finance leases		4 years and seven months			—
Weighted average remaining lease term – operating leases		4 years and 10 months			—

Discount rate – finance leases		6.61	%		—
Discount rate – operating leases		4.64	%		—

Maturity of Leases

Finance lease liability

The amount of future minimum lease payments under finance leases as of March 31, 2022 is as follows:

Schedule of Finance lease liability
	Amount
Remainder of 2022	$	7,372
2023		9,829
2024		9,829
2025		9,829
2026		7,902
Total undiscounted minimum future lease payments		44,761
Imputed interest		(6,303	)
Total finance lease liability	$	38,458
Disclosed as:
Current portion	$	7,507
Non-Current portion		30,951
Lease liability	$	38,458

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8.	Leases (continued)

Operating lease liability

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

Schedule of Operating lease liability
	Amount

Remainder of 2022	$	250,047
2023		348,677
2024		366,110
2025		384,416
2026		437,407
Total undiscounted minimum future lease payments		1,786,657
Imputed interest		(109,299	)
Total operating lease liability	$	1,677,358

Disclosed as:
Current portion	$	254,340
Non-Current portion		1,425,018
Lease liability	$	1,677,358

9.	Taxes Payable

The taxes payable consist of:

	●	A payroll tax liability of ~~$145,200~~$146,119 (CDN$182,589) in Greenstone Muskoka which has not been settled as yet.
	●	A GST/HST tax payable of ~~$87,492~~$137,200 (CDN$~~110,022)~~171,445).
	●	The Company has assets and operates businesses in Canada and is required to disclose these operations to the US taxation authorities, the requisite disclosure has not been made. Management has reserved the maximum penalty due to the IRS in terms of non-disclosure. This noncompliance with US disclosure requirements is currently being addressed. An amount of $250,000 has been accrued for any potential exposure the Company may have.

March 31,
2021 December 31,
2020

Payroll taxes $ 145,200 $ 143,410
HST/GST payable 87,493 73,503
US penalties due 250,000 250,000
Income tax payable 388,150 383,364
$ 870,843 $ 850,277

Schedule of taxation payable
	March 31, 2022		December 31, 2021

Payroll taxes	$	146,119	$	144,020
HST/GST payable		137,200		123,134
Income tax payable		434,346		391,682
Taxes Payable	$	717,665	$	658,836

14 16

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

9.10.

Short-term Convertible Notes

The short-term convertible notes consist of the following:

Schedule of short-term convertible notes
	Interest rate		Maturity Date		Principal		Interest		Debt Discount			March 31, 2021		December 31, 2020	Interest rate			Maturity Date	Principal		Interest		Debt Discount			March 31, 2022		December 31, 2021
Leonite Capital, LLC	8.5	%	—	$	—	$	—	$	—		$	—	$	70,583		12.0	%	On Demand	$	129,379	$	43,673	$	—		$	173,052	$	315,579
	6.5	%	June 12, 2021		677,874		6,763		(340,016	)		344,621		147,058

First Fire Global Opportunities Fund	6.5	%	October 29,2021		138,889		3,821		(80,841	)		61,869		25,297

Auctus Fund, LLC	10.0	%	May 7, 2020		115,000		—		—			115,000		150,000		0.0	%	On Demand		80,000		—		—			80,000		100,000
	10.0	%	August 13, 2021		95,000		6,139		(35,137	)		66,002		40,202
Labrys Fund, LP																12.0	%	November 30, 2021		—		8,826		—			8,826		8,826
																11.0	%	May 7, 2022		389,045		—		(75,420	)		313,625		354,504
Labrys Fund, LP	12.0	%	November 30, 2021		275,000		11,053		(183,836	)		102,217		26,159
																11.0	%	June 2, 2022		230,000		20,074		(47,942	)		202,132		148,488

Ed Blasiak	6.5	%	September 14, 2021		55,000		1,966		(25,164	)		31,802		17,347		6.5	%	September 14, 2021		55,000		5,591		—			60,591		59,697

Joshua Bauman	6.5	%	September 14, 2021		138,889		4,819		(63,817	)		79,891		43,247		11.0	%	October 21, 2022		150,000		7,278		(83,836	)		73,442		32,387

Geneva Roth Remark Holdings, Inc.	9.0	%	August 29, 2021		88,000		2,431		(43,711	)		46,720		19,238		8.0	%	October 1, 2022		42,311		3,385		(21,329	)		24,367		24,384
	9.0	%	October 15, 2021		53,000		1,670		(31,033	)		23,637		6,753
	9.0	%	January 3, 2022		53,500		374		(48,605	)		5,269		—

Series N convertible notes	6.0	%	On Demand		3,229,000		473,105		—			3,702,105		3,654,333		6.0	%	On Demand		3,229,000		666,845		—			3,895,845		3,848,073

											$	4,579,133	$	4,200,217					$	4,304,735	$	755,672	$	(228,527	)	$	4,831,880	$	4,891,938

~~ETHEMA HEALTH CORPORATION~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

9.	~~Short-term Convertible Notes (continued)~~

Leonite Capital, LLC

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

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

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

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

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

~~ETHEMA HEALTH CORPORATION~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

9.	~~Short-term Convertible Notes (continued)~~

~~Leonite Capital, LLC (continued)~~

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

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

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

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

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

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

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

~~ETHEMA HEALTH CORPORATION~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

9.	~~Short-term Convertible Notes (continued)~~

~~Leonite Capital, LLC (continued)~~

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

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

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

On January 8, 2021, in terms of a conversion notice, Leonite converted the principal sum of $70,000 and interest thereon of $137 of the Leonite loan into 78,763,466 shares of common stock at a conversion price of $0.009 per share.

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

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

10.

Short-term Convertible Notes (continued)

Leonite Capital, LLC (continued)

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

On March 3, 2021, in terms of a conversion notice, Leonite converted the principal sum of $82,681 and interest thereon of $12,319 of the Leonite Note into 97,000,000 shares of common stock at a conversion price of ~~$0.009~~$0.0009 per share.

~~ETHEMA HEALTH CORPORATION~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

9.	~~Short-term Convertible Notes (continued)~~

~~Power Up Lending Group LTD~~

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

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

On July 15 2019, the Company, entered into a Securities Purchase Agreement with Power Up, pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $83,000. The Note has a maturity date of April 30, 2020 and 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 Power Up during the period beginning on the date that is 180 days following the issue date into shares of the Company’s common stock at a conversion price equal to 61% of the lowest closing bid price of the Company’s common stock for the ten trading days prior to conversion.

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

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

~~ETHEMA HEALTH CORPORATION~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

9.	~~Short-term Convertible Notes (continued)~~

~~First Fire Global Opportunities Fund~~

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

~~Between September 11, 2019 and December 30, 2019,~~2021, in terms of a conversion ~~notices received,~~notice, Leonite converted the ~~Company issued 11,887,445 shares~~principal sum of ~~Common stock in settlement~~$25,084 and interest thereon of ~~$36,592 of principal outstanding.~~

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

~~On June 3, 2020, the Company entered into an agreement with First Fire whereby the remaining balance~~$4,166 of the ~~convertible note of $73,006 would be settled by two payments of $25,000 each.~~

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

~~On October 29, 2020, the Company entered~~Leonite Note into a Securities Purchase Agreement, pursuant to which the Company issued a senior secured convertible promissory note in the aggregate principal amount of $137,500, including an OID of $12,500. The note bears interest at 6.5% per annum and matures on October 29, 2021. The note is senior to any future borrowings and commencing on November 29, 2020 the Company will make monthly payments of the accrued interest under the note. The note may be prepaid at certain prepayment penalties and is convertible into30,000,000 shares of common stock at a conversion price atof $0.0009 per share.

On June 10, 2021, in terms of a conversion notice, Leonite converted the ~~option~~principal sum of $58,908 and interest thereon of $342 of the ~~holder~~Leonite Note into 60,000,000 shares of common stock at ~~$0.001~~a conversion price of $0.0009 per ~~share, adjusted for anti-dilution provisions; or 80%~~share.

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

On October 19, 2021, in terms of ~~subsequent equity financings or; after six months 60%~~a conversion notice, Leonite converted the principal sum of $44,444 and interest thereon of $5,302 of the ~~lowest trading~~Leonite Note into 50,496,728 shares of common stock at a conversion price ~~during the preceding six month period.~~of $0.0010 per share.

On October 29, ~~2020,~~2021, the Company ~~entered into a five year option agreement with First Fire whereby the Company agreed to sell to First Fire a portion of the total outstanding~~issued 83,771,947 shares of ~~ATHI. The Company provided First Fire an option~~common stock to ~~purchase 6.25%~~Leonite in connection with a conversion notice received, converting principal and interest of ~~ATHI from the Company for~~$83,022 at a purchase consideration of $0.0001 per share, based on the advances that First Fire made to the Company totaling $125,000. First Fire shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by First Fire to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option.

In terms of clause 3.12 of the Senior secured convertible Promissory Note Agreement (“First Fire Note”) entered into with First Fire, the terms of the convertible promissory note issued to Labrys Fund LP on November 30, 2020, as described below, contained terms more favorable than those contained in the First Fire Note, resulting in an adjustment made to the Original issue discount of $1,389 and the issuance of five year warrants exercisable for 50,505,051shares of common at an exerciseconversion price of ~~$0.00205~~$0.0009 per ~~share, for the advance made to the Company by First Fire~~share.

On November 22, 2021, in terms of a conversion notice, Leonite converted the ~~First Fire Note.~~principal sum of $50,532 and interest thereon of $7,145 of the Leonite Note into 58,427,091 shares of common stock at a conversion price of $0.0010 per share.

~~ETHEMA HEALTH CORPORATION~~On December 13, 2021, in terms of a conversion notice, Leonite converted the principal sum of $89,684 and interest thereon of $249 of the Leonite Note into 90,682,696 shares of common stock at a conversion price of $0.0010 per share.

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~On February 28, 2022, in terms of a conversion notice, Leonite converted the principal sum of $149,250 of the Leonite Note into 150,000,000 shares of common stock at a conversion price of $0.0010 per share.

9.	~~Short-term Convertible Notes (continued)~~

Auctus Fund, LLC

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

On June 15, 2020, The Company entered into an amended agreement with Auctus whereby ~~Auctus~~the Company agreed to discharge the principal amount of the note by nine equal monthly installments of $25,000 commencing in October 2020. During the ~~three months~~year ended ~~March~~December 31, 2021, the Company repaid Auctus the principal sum of ~~$35,000.~~$50,000.

~~On August 13, 2020,~~During March 2022, the Company ~~entered into a Securities Purchase Agreement with~~paid $20,000 of principal on the convertible note, thereby reducing the principal outstanding to $80,000. The note matured May 7, 2020, Auctus Fund LLC ~~pursuant to which the Company issued a convertible promissory note in the aggregate principal amount of $100,000 for net proceeds of $85,000 after certain fees and expenses of $15,000. The note~~ has a maturity date of August 13, 2021 and bears interest at 10% per annum. The interest due on the note for the full twelve month period is due immediately upon issuance of the note, regardless of acceleration or prepayment. The principal amount of the note is payable in six monthly instalments of $16,666.66 commencing 180 days after the issuance date, the balance outstanding under the note due at maturity date. In the eventnot declared a default occurs under the Note, the Note is convertible into shares of common stock at a conversion price equal to the lowest trading price over the prior 5 days prior to the date of the note or the five day volume weighted market price prior to the date of conversion. The Company is required to adhere to certain covenants including covenants concerning distributions of capital stock; restrictions on stock repurchases, additional borrowings sales of assets and ~~loans and advances made by the Company. In conjunction~~we are in constant discussion with the ~~issuance of~~lender on settling the promissory note, the Company issued a five year warrant exercisable for 66,666,666 shares of common stock at an exercisable price of $0.0015 per share subject to anti-dilution and price protection adjustments. The Company also issued a second five year warrant exercisable for 66,666,666 shares of common stock at an exercisable price of $0.0015 per share subject to anti-dilution and price protection adjustments, which warrants will only be exercisable upon an event of default on the convertible note.

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

~~Labrys Fund, LP~~

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

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

2118

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

9.10.

Short-term Convertible Notes (continued)

Labrys Fund, LP ~~(continued)~~

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

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

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

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

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

~~In connection with~~On May 3, 2021, in terms of a conversion notice received by the ~~issuance~~company, Labrys converted the aggregate principal sum of ~~the convertible promissory note to Labrys, the Company granted Labrys a five-year warrant to purchase~~$57,000 including interest thereon of $33,000 into 100,000,000 shares of common stock.

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

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

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

On October 15, 2021, in terms of a conversion notice received by the company, Labrys converted the aggregate principal sum of $7,400 into 8,222,222 shares of common stock. The Company has $8,826 of interest outstanding under the convertible promissory note.

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

On November 23, 2021, in terms of ~~$0.00205 per share. The value~~a conversion notice received by the company, Labrys converted the aggregate principal sum of $6,329 and interest of $60,500 into 75,000,000 shares of common stock.

Effective December 29, 2021, the Company entered into a modification of the ~~warrant was accounted for~~convertible note agreement with Labrys whereby the May 7, 2021 note were amended as ~~a debt discount.~~follows:

The Maturity date of the note was extended to May 31, 2022.

The triggering of the dilutive event on October 25, 2021 which reduced the conversion price of the convertible note to $0.001 per share, will not be utilized as long as any events of default under the note are not triggered.

The Company agreed to make monthly payments under the note totaling $536,000 between January 10, and May 31, 2022.

During the three months ended March 31, 2022, the Company repaid $150,000 of the outstanding principal of the convertible note. There have been no further events of default in terms of this convertible note and we are in discussion with the note holder on settling the note.

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

10.

Short-term Convertible Notes (continued)

Labrys Fund, LP (continued)

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

Effective December 29, 2021, the Company entered into a modification of the convertible note agreement with Labrys whereby the May 7, 2021 note were amended as follows:

The Maturity date of the note was extended to June 30, 2022.

The Company agreed to make two equal payments of $127,650 on the note on May 31, and June 30, 2022.

The note is not in default and we are in discussions with the lender on settling the outstanding balance on this note.

Ed Blasiak

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

The note has matured, Ed Blasiak has not declared a default under the note and we are in communication with Mr. Blasiak on our ability to repay the note.

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

~~ETHEMA HEALTH CORPORATION~~Joshua Bauman

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

9.	~~Short-term Convertible Notes (continued)~~

~~Joshua Bauman~~

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

On October 29, 2020, the Company entered into a five year option agreement entered into with Bauman, so that the Company agreed to sell to Bauman a portion of the total outstanding shares of ATHI. The Company provided Bauman an option to purchase 6.25% of ATHI from the Company for a purchase consideration of $0.0001 per share, based on the advances that Bauman made to the Company totaling $125,000. Bauman shall shareJune 8, 2021, in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by Bauman to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option.

In terms of ~~clause 3.12~~a conversion notice received by the company, Bauman converted the aggregate principal sum of ~~the Senior secured convertible Promissory Note Agreement (“Bauman Note”) entered~~$100,000 including interest thereon of $5,563 into with Joshua Bauman, the terms of the convertible promissory note issued to Labrys Fund LP on November 30, 2020, as described above, contained terms more favorable than those contained in the Bauman Note, resulting in an adjustment made to the Original issue discount of $1,389 and the issuance of five year warrants exercisable for 50,505,051106,313,288 shares of common ~~at an exercise price of $0.00205 per share, for the advance made to the Company by Bauman~~stock.

On October 25, 2021, in terms of a conversion notice received by the company, Bauman ~~Note.~~converted the aggregate principal sum of $37,500 including interest thereon of $1,155 into 39,405,310 shares of common stock, thereby extinguishing the note.

~~Geneva Roth Remark Holdings, Inc~~

On October ~~29, 2020,~~21, 2021, the Company entered into a Securities Purchase Agreement with Joshua Bauman (“Bauman”), pursuant to which the Company issued a ~~Convertible Promissory Note~~senior secured convertible promissory note in the aggregate principal amount of ~~$88,000, for net proceeds~~$150,000, including an original issue discount of ~~$85,000 after the payment of legal fees and origination fees amounting to $3,000.~~$16,250. The note ~~has a maturity date of August 29, 2021 and~~ bears interest at ~~the rate of 9.0%~~11.0% per ~~annum.~~annum, which is guaranteed and earned in full on issue date and matures on October 21, 2022. The ~~outstanding principal amount of the~~ note may be prepaid at certain prepayment penalties and is convertible ~~at any time and from time to time at the election of the purchaser. 180 days after the issued date~~ into shares of ~~the Company’s~~ common stock at ~~61%~~a conversion price at the option of the lowest trade price during the ten consecutive trading days immediately prior to conversion. The principal plus the accrued interest of the Note may be prepaid by the Company prior to the expiry of 180 days from issuance dateholder at ~~a prepayment penalty ranging from 112% to 130%.~~$0.001 per share, adjusted for anti-dilution provisions.

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

On ~~March 3,~~October 1, 2021, the Company entered into a Securities Purchase Agreement pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of ~~$53,500,~~$95,200, for net proceeds of ~~$50,000 after~~$85,000 before the payment of legal fees and origination fees amounting to ~~$3,500.~~$3,750. The note has a maturity date of ~~January 3,~~October 1, 2022 and bears interest at the rate of ~~9.0%~~8.0% per ~~annum.~~annum, due immediately on the issuance date of the note. The outstanding principal amount of the note is payable in nine monthly payments of $11,424 commencing on November 15, 2021. The note is convertible ~~at any time and from time to time~~into shares of common stock upon an event of default at the election of the purchaser. ~~180 days after the issued date into shares of the Company’s common stock at 61%~~The conversion price is 75% of the lowest ~~trade~~trading price ~~during~~for the ~~ten consecutive trading~~preceding five days ~~immediately prior to conversion. The principal plus the accrued interest of the Note may be prepaid by the Company~~ prior to the ~~expiry~~date of ~~180 days from issuance date at a prepayment penalty ranging from 112% to 130%.~~

~~ETHEMA HEALTH CORPORATION~~conversion.

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

9.	~~Short-term Convertible Notes (continued)~~

Series N convertible notes

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

The series N convertible notes have past their maturity date, there are no default terms and we are considering our options to settle these notes.

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~10.~~11.

~~Mortgage~~Short term loans

LXR Biotech

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

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

Leonite Capital, LLC

Secured Promissory Notes

On March 1, 2022, the Company entered into a secured Promissory Note in the aggregate principal amount of $124,000 for net proceeds of $100,000 after an original issue discount of $24,000. The Note had a maturity date of April 1, 2022. This note has not been repaid at the date of this report and no default has been declared. We are in discussions with Leonite on the repayment of this note and the advancement of additional funds for business purposes.

12.

Mortgage loans

Mortgage loans is disclosed as follows:

Schedule of mortgage loans
		Interest rate			Maturity date	Principal Outstanding		Accrued interest		March 31, 2021		December 31, 2020		Interest rate			Maturity date	Principal Outstanding		Accrued interest		March 31, 2022		December 31, 2021

Cranberry Cove Holdings, Ltd.	Cranberry Cove Holdings, Ltd.
Pace Mortgage			4.2	%	July 19, 2022	$	3,978,909	$	5,495	$	3,984,404	$	3,963,781		4.2	%	July 19, 2022	$	3,884,941	$	5,365	$	3,890,306	$	3,864,312
Disclosed as follows:	Disclosed as follows:
Short-term portion	Short-term portion									$	118,538	$	115,704									$	3,890,306	$	3,864,312
Long-term portion											3,865,866		3,848,077
										$	3,984,404	$	3,963,781

~~The aggregate amount outstanding is payable as follows:~~

Amount
Within the next twelve months 118,538
Thereafter 3,865,866
Total $ 3,984,404

Cranberry Cove Holdings, Ltd.

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

~~11.~~13.

~~Short term~~Government assistance loans

On ~~April 12, 2019, Eileen Greene,~~December 1, 2020, CCH was granted a Covid-19 related ~~party assigned CDN1,000,000~~government assistance loan in the aggregate principal amount of CDN$ 40,000 (Approximately $31,000). the ~~amount owed~~grant is interest free and CDN$ 10,000 is forgivable if the loan is repaid in full by ~~the Company to her, to a third party. The loan bears interest at 12% per annum which the Company agreed to pay.~~

~~ETHEMA HEALTH CORPORATION~~December 31, 2022.

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~On January 12, 2021, CCH received a further CDN$ 20,000 Covid-19 related government assistance loan. The loan is interest free and if repaid by December 31, 2022, CDN$ 10,000 is forgivable.

~~12.~~

~~Government assistance loans~~

On May ~~10, 2020,~~3, 2021, the Company was granted a government assistance loan in the aggregate principal amount of ~~$156,782.~~$157,367. The loan is forgivable if the Company demonstrates that the proceeds were used for expenses such as employee costs during the pandemic. Should the loan not be forgiven, interest is payable on the loan at the rate of 1% per annum and the principal is repayable and interest is payable over an 18 month period. No payments have been made to date and the Company expects the loan to be forgiven, therefore no interest has been accrued.

~~On December 1, 2020, CCH was granted a Covid-19 related~~

The company has applied for forgiveness of this government assistance loan, ~~in the aggregate principal amount of CDN$ 40,000 (Approximately $31,000). the grant is interest free and CDN$ 10,000 is forgivable if~~we expect that the loan ~~is repaid in full~~will be forgiven and are awaiting written confirmation of forgiveness.

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

14.

Third party loans

On April 12, 2019, Eileen Greene, a related party assigned CDN$1,000,000 of the amount owed by ~~December 31, 2022.~~

~~On January 12, 2021, CCH received~~the Company to her, to a ~~further CDN$ 20,000 Covid-19 related government assistance loan.~~third party. The loan isbears interest ~~free and if~~at 12% per annum which the Company agreed to pay.

During the current period the Company repaid ~~by December 31, 2022,~~ CDN$ ~~10,000 is forgivable.~~100,000 (approximately $78,977).

~~13.~~15.

Derivative liability

The short-term convertible notes issued to convertible note holders disclosed in note 910 above, have variable priced conversion rights with no fixed floor price and will reprice dependent on the share price performance over varying periods of time. This gives rise to a derivative financial liability, which was initially valued at inception of the convertible notes at ~~$109,574~~$1,959,959 using a Black-Scholes valuation ~~model, after taking into account the value of warrants issued to the convertible note holders.~~model.

The derivative liability is marked-to-market on a quarterly basis. As of March 31, ~~2021,~~2022, the derivative liability was valued at ~~$4,379,372.~~$278,699.

The following assumptions were used in the Black-Scholes valuation model:

Schedule of assumption used in Black Scholes	~~Three months ended~~ ~~March 31,~~ ~~2021~~

	Three months ended March 31 2022

Calculated stock price		$~~0.001~~0.0006 to ~~$0.0055~~$0.0010
Risk free interest rate		~~0.03%~~0.06% to ~~0.64~~2.45	%
Expected life of convertible notes and warrants		3 to 6039 months
expected volatility of underlying stock		~~157.4%~~167.1% to ~~299.1~~238.1	%
Expected dividend rate		0	%

The movement in derivative liability is as follows:

March 31,
2021 December 31,
2020

Opening balance $ 4,765,387 $ 8,694,272
Derivative liability mark-to-market on convertible debt extinguishment —   126,444,276
Derivative liability on revised convertible notes and warrants arising from convertible debt extinguishment —   6,349,265
Derivative liability cancelled on debt extinguishment —   (144,893,444
Derivative liability on issued convertible notes 109,574 1,129,050
Fair value adjustments to derivative liability (495,589 ) 7,041,968

Closing balance $ 4,379,372 $ 4,765,387

Schedule of derivative liability
	March 31, 2022			December 31, 2021

Opening balance	$	515,901		$	4,765,387
Derivative liability extinguished on convertible notes converted to equity		(39,726	)			(2,914,119	)
Derivative liability on issued convertible notes		—			190,824
Fair value adjustments to derivative liability		(197,476	)		(1,526,191		)

Closing balance	$	278,699		$	515,901

25 22

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~14.~~16.

Related party transactions

Shawn E. Leon

As of March 31, ~~2021~~2022 and December 31, ~~2020~~2021 the Company had a payable to Shawn Leon of ~~$322,744.~~$341,379 and $106,100, respectively. Mr. Leon is a director and CEO of the Company. The balances payable are non-interest bearing and has no fixed repayment terms.

Due to the current financial position of the Group, Mr. Leon forfeited the management fees due to him for the three months ended March 31, ~~2021~~2022 and ~~for~~ the year ended December 31, ~~2020.~~2021.

Leon Developments, Ltd.

As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company owed Leon Developments, Ltd. ~~$946,894~~, $955,398 and ~~$930,307,~~$935,966, respectively, for funds advanced to the Company.

Eileen Greene

As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company owed Eileen Greene, the spouse of our CEO, Shawn Leon, ~~$1,545,812~~$1,496,164 and ~~$1,558,798,~~$1,472,215, respectively. The amount owing to Ms. Greene is non-interest bearing and has no fixed repayment terms.

All related party transactions occur in the normal course of operations and in terms of agreements entered into between the parties.

~~15.~~17.

Stockholder’s deficit

Common shares

Authorized and outstanding

The Company has authorized 10,000,000,000 shares with a par value of $0.01 per share. The company has issued and outstanding ~~2,262,849,130~~3,729,053,805 and ~~2,027,085,665~~ 3,579,053,805 shares of common stock at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

On ~~January 8, 2021,~~February 28, 2022, the Company issued ~~78,763,466~~150,000,000 shares of common stock to Leonite in connection with a conversion notice received, converting principal ~~and interest~~ of ~~$70,137.~~$149,250.

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

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

Series A Preferred shares

Authorized, issued and outstanding

The Company has authorized 10,000,000 Series A preferred shares with a par value of $0.01 per share. The company has issued and outstanding 4,000,000 Series A Preferred shares at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

Series B Preferred shares

Authorized and outstanding

The Company has authorized 400,000 Series B preferred shares with a par value of $1.00 per share. The company has issued and outstanding 400,000 Series B Preferred shares at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

~~ETHEMA HEALTH CORPORATION~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~15.~~

~~Stockholder’s deficit (continued)~~d)

Stock options

~~Warrants~~

The Secured Promissory Note Agreements entered into with Leonite, First Fire and Bauman contain certain conversion price protection and anti-dilution protection provisions, which were triggered as a result of the terms contained in the promissory note issued to Labrys Fund LP on November 30, 2020. As a result, the Company issued five year warrants exercisable for 246,464,649 shares of common at an exercise price of $0.00205 per share, for all advances made to the Company by the lenders in terms of the secured Promissory Note Agreements.

Between January 8, 2021 and February 19, 2021, Leonite advanced the Company an additional $290,000 and in terms of clause 3.12 of the Secured Promissory Note Agreement entered into with Leonite, the Company granted Leonite five year warrants exercisable for 131,111,112 shares of common stock at an exercise price of $0.00205 per share.

~~On March 9, 2021, the Company received a cashless warrant exercise, exercising warrants for 66,666,666 shares for net shares of 59,999,999 shares of common stock.~~

~~A summary of all of the Company’s warrant activity during the period January 1, 2020 to March 31, 2021 is as follows:~~

No. of shares Exercise price per
share Weighted average exercise price

Outstanding as of January 1, 2020 2,566,101,248 $0.00204 to $0.12 $ 0.0044700
Granted 233,333,332 0.0017357 0.0017357
Adjustment due to price protection 152,017,272,726 0.0000324 0.0000324
Forfeited/cancelled (2,366,666 ) 0.0300000 0.0300000
Granted in terms of debt extinguishment 326,286,847 0.000675 0.0006750
Cancelled as part of debt extinguishment (154,300,675,861 ) 0.0000324 0.0000324
Exercised (224,390,247 ) 0.0004 0.0004000
Outstanding as of December 31, 2020 615,561,379 $0.000675 to $0.12 0.0113796
Granted 377,575,761 $0.0020500 0.0020500
Forfeited/cancelled — — —
Exercised (66,666,666 ) $0.0015000 $0.001500
Outstanding as of March 31, 2021 926,470,474 $0.000675 to $0.12 $ $0.0082883

~~The warrants were valued using a Black Scholes pricing model on the date of grant at $1,565,487 using the following weighted average assumptions:~~

	~~Three months ended~~ ~~March 31,~~ ~~2021~~
~~Calculated stock price~~		~~$0.00205~~
~~Risk free interest rate~~		~~0.36 to 0.59~~	%
~~Expected life of warrants~~		~~60 months~~
~~expected volatility of underlying stock~~		~~226.2 to 231.3~~	%
~~Expected dividend rate~~		0	%

~~ETHEMA HEALTH CORPORATION~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~15.~~

~~Stockholder’s deficit (continued)~~

~~Warrants (continued)~~

The volatility of the common stock is estimated using historical data of the Company’s common stock. The risk-free interest rate used in the Black Scholes pricing model is determined by reference to historical U.S. Treasury constant maturity rates with maturities approximate to the life of the warrants granted. An expected dividend yield of zero is used in the valuation model, because the Company does not expect to pay any cash dividends in the foreseeable future.

~~The following table summarizes information about warrants outstanding at March 31, 2021:~~

Warrants outstanding Warrants exercisable

Exercise price

No. of shares

Weighted average
remaining years

Weighted average
exercise price

No. of shares

Weighted average
exercise price

$0.000675 326,286,847 4.28 326,286,847
$0.03000 3,703,700 0.04 3,703,700
$0.00150 66,666,666 437 66,666,666
$0.00205 477,575,761 4.73 477,575,761
$0.12 52,237,500 0.64 52,237,500

926,470,474 4.30 $ 0.0082883 926,470,474 $ 0.0082883

~~All of the warrants outstanding as of March 31, 2021 are vested. The warrants outstanding as of March 31, 2021 have an intrinsic value of $3,227,478.~~

~~Stock options~~

Our board of directors adopted the Greenstone Healthcare Corporation 2013 Stock Option Plan (the “Plan”) to promote our long-term growth and profitability by (i) providing our key directors, officers and employees with incentives to improve stockholder value and contribute to our growth and financial success and (ii) enable us to attract, retain and reward the best available persons for positions of substantial responsibility. A total of 10,000,000 shares of our common stock have been reserved for issuance upon exercise of options granted pursuant to the Plan. The Plan allows us to grant options to our employees, officers and directors and those of our subsidiaries; provided that only our employees and those of our subsidiaries may receive incentive stock options under the Plan. We have no issued options at March 31, ~~2021~~2022 under the Plan.

28 23

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

17.

Stockholder’s deficit (continued)

Warrants

All of the warrants with the exception of the 8,287,500 warrants exercisable at $0.12 per share have cashless exercise terms whereby in-the-money warrants may be exercised by reducing the number of shares issued in terms of the warrant exercise to offset the proceeds due on the exercise. The 8,287,500 warrants are only exercisable for cash.

All of the warrants with the exception of the 8,287,500 warrants exercisable at $0.12 per share have price protection features whereby any securities issued subsequent to the date of the warrant issuance date, were issued at a lower price, or have conversion features that are lower than the current exercise price, or were converted at a lower price, or are exercisable at a lower price, to the current warrant exercise price, will result in the exercise price of the warrant being set to the lower issue, conversion or exercise price.

A summary of the Company’s warrant activity during the period from January 1, 2021 to March 31, 2022 is as follows:

Schedule of warrants outstanding
	No. of shares			Exercise price per share		Weighted average exercise price

Outstanding as of January 1, 2021		615,561,379			$0.000675 to $0.12	$	0.011380
Granted		471,010,103			$0.0020500		0.003080
Forfeited/cancelled		(101,682,866	)		$0.0015 to $0.12		0.039029
Exercised		(361,111,110	)		$0.00150 to $0.00205		0.003291
Outstanding as of December 31, 2021		623,777,506			$0.000675 to $0.12	$	0.0052875
Granted		—			—		—
Forfeited/cancelled		(12,637,500	)		$0.12		0.12
Exercised		—			—		—
Outstanding as of March 31, 2022		611,140,006			$0.000675 to $0.12	$	0.0029154

The following table summarizes information about warrants outstanding at March 31, 2022:

Schedule of assumption
	Warrants outstanding						Warrants exercisable
Exercise price	No. of shares		Weighted average remaining years		Weighted average exercise price		No. of shares		Weighted average exercise price

$0.000675		326,286,847		3.28				326,286,847
$0.002050		276,565,659		3.77				276,565,659
$0.120000		8,287,500		0.27				8,287,500

		611,140,006		3.46	$	0.0029154		611,140,006	$	0.0029154

All of the warrants outstanding at March 31, 2022 are vested. The warrants outstanding at March 31, 2022 have an intrinsic value of $8,157.

~~16.~~18.

Segment information

The Company has two reportable operating segments:

Rental income from the property owned by CCH subsidiary located at 3571 Muskoka Road, #169, Bala, on which the operations of the Canadian Rehab Clinic were located prior to disposal on February 14, 2017 and subsequently leased to the purchasers of the business of the Canadian Rehab Clinic, for a period of 5 years renewable for a further three five-year periods and with an option to acquire the property at a fixed price.

Rehabilitation Services provided to customers, these services were provided to customers at our Evernia, Addiction Recovery Institute of America and Seastone of Delray operations.

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

18.

Segment information (continued)

The segment operating results of the reportable segments for the three months ended March 31, ~~2021~~2022 is disclosed as follows:

Three months ended March 31, 2021
Rental Operations In-Patient services Total

Revenue $ 90,793 $ —   $ 90,793
Operating expenditure (32,849 ) (19,167 ) (52,016 )

Operating income (loss) 57,944 (19,167 ) 38,777

Other (expense) income
Loss on debt conversion —   (1,106,648 ) (1,106,648 )
Penalty on convertible notes —   (9,240 ) (9,240 )
Fair value of warrants granted (976,788 ) (976,788 )
Fair value of warrants exercised (90,000 ) (90,000 )
Interest expense (59,745 ) (77,932 ) (137,677 )
Amortization of debt discount —   (502,677 ) (502,677 )
Change in fair value of derivative liability —   495,589 495,589
Foreign exchange movements (18,695 ) (60,797 ) (79,492 )
Net loss before taxation (20,496 ) (2,347,660 ) (2,368,156 )
Taxation —   —   —
Net loss $ (20,496 ) $ (2,347,660 ) $ (2,368,156 )

Schedule of segment information
	Three months ended March 31, 2022
	Rental Operations			In-Patient services			Total

Revenue	$	93,874		$	929,441		$	1,023,315
Operating expenses		(33,316	)		(915,059	)		(948,375	)

Operating income		60,558			14,382			74,940

Other (expense) income
Other income		—			10,018			10,018
Interest expense		(53,607	)		(27,161	)		(80,768	)
Amortization of debt discount		—			(252,832	)		(252,832	)
Derivative liability movement		—			197,476			197,476
Foreign exchange movements		(21,829	)		(73,727	)		(95,556	)
Net loss before taxes		(14,878	)		(131,844	)		(146,722	)
Taxes		—			(18,263	)		(18,263	)
Net loss	$	(14,878	)	$	(150,107	)	$	(164,985	)

The operating assets and liabilities of the reportable segments as of March 31, 2022 is as follows:



	March 31, 2022
	Rental Operations			In-Patient services			Total

Purchase of fixed assets	$	—		$	72,858		$	72,858
Assets
Current assets		551			355,167			355,718
Non-current assets		2,773,914			3,426,324			6,200,238
Liabilities
Current liabilities		(1,590,715	)		(12,078,894	)		(13,669,609	)
Non-current liabilities		(636,577	)		(1,710,232	)		(2,346,809	)
Mandatory redeemable preferred shares		—			(400,000	)		(400,000	)
Intercompany balances		1,238,399			(1,238,399	)		—
Net liability position	$	1,785,572		$	(11,646,034	)	$	(9,860,462	)


	Three months ended March 31, 2021
	Rental Operations			In-Patient services			Total

Revenue	$	90,793		$	—		$	90,793
Operating expenditure		(32,849	)		(19,167	)		(52,016	)

Operating income (loss)		57,944			(19,167	)		38,777

Other (expense) income
Penalty on convertible notes		—			(9,240	)		(9,240	)
Fair value of warrants granted		—			(976,788	)		(976,788	)
Fair value of warrants exercised		—			(90,000	)		(90,000	)
Interest expense		(59,745	)		(77,932	)		(137,677	)
Amortization of debt discount		—			(502,677	)		(502,677	)
Derivative liability movement		—			(611,059	)		(611,059	)
Foreign exchange movements		(18,695	)		(60,797	)		(79,492	)
Net loss before taxation		(20,496	)		(2,347,660	)		(2,368,156	)
Taxation		—			—			—
Net loss	$	(20,496	)	$	(2,347,660	)	$	(2,368,156	)

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

18.

Segment information (continued)

The operating assets and liabilities of the reportable segments as of March 31, 2021 is as follows:


	March 31, 2021
	Rental Operations			In-Patient services			Total

Purchase of fixed assets	$	—		$	—		$	—
Assets
Current assets		4,580			1,196,939			1,201,519
Non-current assets		2,885,861			5,157			2,891,018
Liabilities
Current liabilities		(1,484,968	)		(12,388,857	)		(13,873,825	)
Non-current liabilities		(4,645,209	)		—			(4,645,209	)
Mandatory redeemable preferred shares		—			(400,000	)		(400,000	)
Intercompany balances		1,330,423			(1,330,423	)		—
Net liability position	$	(1,909,313	)	$	(12,917,184	)	$	(14,826,497	)

~~ETHEMA HEALTH CORPORATION~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~16.~~19.

~~Segment information (continued)~~

~~The segment operating results of the reportable segments for the three months ended March 31, 2020 is disclosed as follows:~~

Three months ended March 31, 2020
Rental Operations In-Patient services Total
Revenue $ 83,542 $ - $ 83,542
Operating expenditure 30,300 143,849 174,149

Operating income (loss) 53,242 (143,849 ) (90,607 )

Other (expense) income
Other income
Loss on conversion of convertible notes - (286,343 ) (286,343 )
Exercise of warrants - (92,952 ) (92,952 )
Interest income - 60 60
Interest expense (61,398 ) (132,524 ) (193,922 )
Amortization of debt discount - (403,677 ) (403,677 )
Change in fair value of derivative liability - (9,754,896 ) (9,754,896 )
Foreign exchange movements 71,619 412,432 484,051
Net income (loss) before taxation 63,463 (10,401,749 ) (10,338,286 )
Taxation - - -
Net income (loss) $ 63,463 $ (10,401,749 ) $ (10,338,286 )

~~The operating assets and liabilities of the reportable segments as of March 31, 2020 is as follows:~~

March 31, 2020
Rental Operations In-Patient services Total

Purchase of fixed assets —   —   —
Assets
Current assets 2,883 208,793 211,676
Non-current assets 2,677,198 —   2,677,198
Liabilities
Current liabilities (1,149,279 ) (27,237,487 ) (28,386,766 )
Non-current liabilities (3,526,779 ) (730,235 ) (4,257,014 )
Intercompany balances (704,122 ) 704,122 —
Net liability position (2,700,099 ) (27,054,807 ) (29,754,906 )

~~ETHEMA HEALTH CORPORATION~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~17.~~

Net (loss) income per common share

For the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, the following options, warrants and convertible securities were excluded from the computation of diluted net loss per share as the results would have been anti-dilutive.

Schedule of Antidilutive Securities

	Three months ended March 31, 2021		Three months ended March 31, 2020		Three months ended March 31, 2022		Three months ended March 31, 2021

Warrants to purchase shares of common stock		926,470,474		154,455,397,549		611,140,006		926,470,474
Convertible notes		662,500,729		48,756,889,839		458,435,448		662,500,729
		1,588,971,203		203,212,287,388		1,069,575,454		1,588,971,203

~~18.~~20.

Commitments and contingencies

~~Contingency related~~Options granted to ~~outstanding penalties~~purchase shares in ATHI

On July 12, 2020, the Company entered into a five year option agreement with Leonite Capital LLC (“Leonite”) and other investors (collectively the “Transferees”), the Company agreed to sell to Leonite a portion of the total outstanding shares of ATHI from the shares of ATHI held by the company. The Company ~~has~~ provided Leonite an option to purchase 4,000,000 shares of ATHI from the Company for ~~potential US penalties~~a purchase consideration of ~~$250,000 due~~$0.0001 per share (a total consideration of $400), based on the advances that Leonite made to ~~non-compliance~~the Company totaling $396,000. Leonite shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by Leonite to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option.

On September 14, 2020, the Company entered into a five year option agreement with Ed Blasiak (“Blasiak”) whereby the ~~filing~~Company agreed to sell to Blasiak a portion of ~~certain required returns.~~the total outstanding shares of ATHI. The ~~actual liability may~~Company provided Blasiak an option to purchase 571,428 shares of ATHI from the Company for a purchase consideration of $0.0001 per share (a total consideration of $57), based on the advances that Blasiak made to the Company totaling $50,000. Blasiak shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by Blasiak to the Company, thereafter the option will be ~~higher due~~reduced to ~~interest and penalties assessed~~50% of the shares exercisable under the option.

On October 29, 2020, the Company entered into a five year option agreement with First Fire whereby the Company agreed to sell to First Fire a portion of the total outstanding shares of ATHI. The Company provided First Fire an option to purchase 1,428,571 shares of ATHI from the Company for a purchase consideration of $0.0001 per share (a total consideration of $143), based on the advances that First Fire made to the Company totaling $120,000. First Fire shall share in all distributions by ~~these taxing authorities.~~ ATHI to the Company, on an as exercised basis, equal to the advances made by First Fire to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option.

On October 29, 2020, the Company entered into a five year option agreement entered into with Bauman, so that the Company agreed to sell to Bauman a portion of the total outstanding shares of ATHI. The Company provided Bauman an option to purchase 1,428,571 shares of ATHI from the Company for a purchase consideration of $0.0001 per share (a total consideration of $143), based on the advances that Bauman made to the Company totaling $120,000. Bauman shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by Bauman to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option.

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

20.

Commitments and contingencies (continued)

Mortgage loans

The company has a mortgage ~~loans~~loan as disclosed in note 1012 above. The ~~future commitment under this~~mortgage loan ~~is as follows:~~matures on July 19, 2022 and the Company currently owes $3,890,306.

Amount
Within the next twelve months 118,538
Thereafter 3,865,866
Total $ 3,984,404

Other

The Company has principal and interest payment commitments under the Convertible notes disclosed under Note 910 above. Conversion of these notes are at the option of the investor, if not converted these notes may need to be repaid.

From time to time, the Company and its subsidiaries enter into legal disputes in the ordinary course of business. The Company believes there are no material legal or administrative matters pending that are likely to have, individually or in the aggregate, a material adverse effect on its business or results of operations.

~~19.~~21.

Subsequent events

On ~~April 30, 2021~~May 3, 2022, the Company, ~~was given a conversion notice of three payments of $30,800 due on April 30, 2021 under the Labrys note~~ entered into ~~on November 30, 2020~~a secured Promissory Note in the aggregate principal amount of ~~$275,000 and 100,000,000 restricted shares were issued. The Company still has seven more payments of 30,800 due under the note.~~

~~On May 10, 2021, the Company closed on a new financing with Labrys for a $550,000 convertible note including a 10% OID~~$76,250 for net proceeds of ~~$500,000.~~$61,000 after an original issue discount of $15,250. The ~~note~~Note had a maturity date of June 17, 2022 and bears interest at ~~10%~~the rate of zero percent per annum ~~and has a fixed conversion price of $0.005 per share subject to adjustments should other new financings be done at more favorable terms. The note is due 12 months~~ from the ~~issuance date. The funding included a five year warrant for 91,666,666 shares at a conversion price~~date on which the Note was issued until the same became due and payable.

Other than disclosed above, the Company has evaluated subsequent events through the date of ~~$0.006 per share.~~the condensed consolidated financial statements were issued, we did not identify any other subsequent events that would have required adjustment or disclosure in the financial statements.

31 27

~~ETHEMA HEALTH CORPORATION~~

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~19.~~

~~Subsequent events (continued)~~

On May 10, 2021, the Company prepaid the note entered into on October 29, 2020 with First Fire Global Opportunities Fund, LLC in the aggregate principal amount of $137,500. The note was repaid in its entirety.

~~On May 12, warrants issued under the note in the amount 50,505,051 shares were exercised on a cashless basis, resulting in the issuance of 42,353,038 common shares.~~

~~On April 30, 2021 the Company prepaid the note issued on October 29, 2020, to Geneva Roth Remark Holdings, Inc., in the aggregate principal amount of $88,000. The note has been repaid in its entirety.~~

~~On May 10, 2021 the Company prepaid the note issued August 13, 2020, to Auctus Fund LLC, in the aggregate principal amount of $100,000. The note has been repaid and retired.~~

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

The Company intends to continue its operations at a new location in west Palm Beach. A Letter of Intent ("LOI") was signed on February 7, 2020, with a third party that has a property lease and a pending license at its new location. The Company originally anticipated recommencing operations in February 2020, however it has been adversely affected by the COVID-19 pandemic. The LOI requires the Company to provide a working capital loan of up to $500,000, the Company has loaned $1,026,669 as of March 31, 2021. The Company is expected to close on the acquisition during the second quarter.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our consolidated financial statements and the notes presented herein and the consolidated financial statements and the other information set forth in our Annual Report on Form 10- K for the year ended December 31, ~~2020~~2021 filed with the Securities and Exchange Commission on April ~~15, 2021.~~14, 2022. In addition to historical information, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed herein and any other periodic reports filed and to be filed with the Securities and Exchange Commission.

Plan of Operation

During the next twelve months, the Company plans to ~~conclude the purchase of Evernia and~~ continue to grow the Evernia business.

~~Results~~With effect from July 1, 2021, the operations of ~~Operations~~ATHI, which include Evernia are included in the results of operations.

For the three months ended March 31, ~~2021~~2022 and March 31, ~~2020.~~2021.

Revenues

Revenues were ~~$90,793~~$1,023,315 and ~~$83,542~~$90,793 for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively, an increase of ~~$7,251~~ $932,522 or ~~8.7%, this included~~1,027.1%. The revenue from in-patient services related to Evernia was $929,441 and $0 for the three months ended March 31, 2022 and 2021, respectively. Evernia was acquired on July 1, 2021. The revenue from rental properties was $93,874 and $90,793 and included the rental escalation as per the agreement and ~~a deterioration~~an improvement in the currency exchange rate against the Canadian Dollar over the prior period.

Operating Expenses

Operating expenses were ~~$52,016~~$948,375 and ~~$174,149~~$52,016 for the three months ended March 31, 2022 and 2021, ~~and 2020,~~ respectively, a ~~decrease~~an increase of ~~$122,133~~$896,359 or ~~70.1%~~1,723.2%. The ~~decrease~~increase is primarily due to the following:

·●

~~General~~Operating expenses related to ATHI and ~~administrative expenses~~Evernia was ~~$5,503 and $22,536~~$882,698 for the three months ended March 31, ~~2021~~2022, Evernia was acquired on July 1, 2021. Included in Evernia operating expenses is payroll costs of $412,673, outside contractors and ~~2020, respectively, a decrease~~professional fees of ~~$17,033 or 75.6%. The decrease is due~~$86,261, advertising and promotion costs of $27,162 management fees of $30,000, rental expenses of $90,031, and depreciation and amortization expenses of $99,879, which relate primarily to the ~~continued winding down~~amortization of ~~operations as the business focuses on the~~intangibles.

	●	Operating expenses, excluding ATHI and Evernia ~~operation mentioned above.~~

	·	~~Professional fees~~ was ~~$36~~$65,677 and ~~$108,021~~$52,016 for the three months ended March 31, 2022 and 2021, respectively, an increase of $13,661 or 26.3%, the amount is immaterial.

	●	Rent expense, excluding ATHI and ~~2020, respectively, a decrease of $107,985 or 99.9%. The decrease is due to the winding down of all other operations with a focus on building up the~~ Evernia ~~business mentioned above.~~

	·	~~Salaries~~was $0 and ~~wages was $12,852 and $12,351~~$1,500 for the three months ended March 31, 2022 and 2021, respectively, a decrease of $1,500 or 100.0%. This amount is immaterial.

	●	Management fees, excluding ATHI and ~~2020, respectively, an increase of $501 or 4.1%. Slight increases in salaries were granted during the current period.~~

	·	~~Depreciation expense~~Evernia was ~~$32,125 and $30,241~~$0and $0 for the three months ended March 31, 2022 and 2021, respectively. Management fees were waived during the current and ~~2020,~~prior period, due to the financial position the Company is in.

●

Salaries and wages, excluding ATHI and Evernia was $24,152 and $12,852 for the three months ended March 31, 2022 and 2021, respectively, an increase of ~~$1,884~~$11,300 or ~~6.2%~~87.9%, the increase is ~~related~~due the additional person to monitor the ~~deterioration of the US Dollar exchange rate against the Canadian Dollar over the prior period.~~corporate office.

●

Depreciation expense, excluding ATHI and Evernia was $32,121 and $32,125 for the three months ended March 31, 2022 and 2021, respectively, a decrease of $4, the difference is immaterial.

Operating Income ~~(loss)~~

The operating income was ~~$38,777~~$74,940 and ~~operating loss was $90,607~~$38,777 for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively, an ~~improvement~~increase of ~~$129,384~~$36,163 or ~~142.8%~~93.3%. The ~~increase~~improvement in operating income is due to the ~~slight improvement~~operating income realized in ~~revenues~~ATHI and Evernia of $46,473, offset by the ~~decrease in operating expenses as discussed above.~~

~~Loss~~increased loss realized on ~~conversion~~the legacy operations of ~~convertible debt~~$10,580, which is immaterial..

The loss on conversion of convertible debt was$1,106,648 and $286,343 for the three months ended March 31, 2021 and 2020, respectively, an increase of $820,305 or 286.5%. The increase in loss is attributable to the fixed conversion price on the notes converted in a market where our share price had increased substantially from the date that the fixed conversion prices were set.Other income

~~Penalty on convertible notes~~

~~Penalty on convertible notes~~Other income was ~~$9,240~~$10,018 and $0 for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, an increase of ~~$9,240. The penalty on convertible notes relates~~$10,018 or 100%. Other income represents a once off contribution by our landlord to ~~a fee paid~~our operations.

Warrant exercise

Warrant exercise was $0 and $90,000 for the ~~extension~~three months ended March 31, 2022 and 2021, respectively, a decrease of ~~repayment dates~~$90,000. During the prior period warrant holders exercised warrants on ~~the Labrys note.~~a cashless basis.

Fair value of warrants granted to convertible debt holders

Fair value of warrants granted to convertible debt holders was ~~$976,788~~$0 and $0$976,788 for the three months ended March 31, 2022 and 2021, ~~and 2020, an increase~~a decrease of $976,788 or 100%. The Company granted warrants to certain convertible debt holders in terms 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 246,464,649 shares of common stock valued using a Black Scholes valuation model.

~~Exercise of warrants~~Interest expense

~~Exercise of warrants~~Interest expense was ~~$90,000~~$80,768 and ~~$92,952~~$137,677 for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively, a decrease of ~~$2,952~~$56,909 or ~~3.2%. During~~41.3%, primarily due to a reduction in overall debt due to conversion of convertible notes over the prior 12 months and the repayment of convertible notes during the current ~~period a warrant holder exercised warrants for 66,666,666 shares~~period.

Amortization of ~~common stock resulting in the expense~~debt discount

Amortization of ~~$90,000 for the issue of 59,999,999 shares of common stock, on a cashless basis.~~

~~Interest expense~~

~~Interest expense~~debt discount was ~~$137,677~~$252,832 and ~~$193,922~~$502,677 for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively, a decrease of ~~$56,245~~$249,845 or ~~29.0% was~~49.7%. The decrease is primarily due to the conversion of convertible debt ~~to equity~~over the past twelve months and the repayment of debt during the current period, ~~and lower interest rates~~resulting in ~~the convertible debt outstanding during~~acceleration of amortization expense in periods prior to the current period.

~~Debt discount~~Derivative liability movement

~~Debt discount~~The derivative liability movement was ~~$502,677~~$197,476 and ~~$403,677~~($611,059) for the three months ended March 31, 2022 and 2021, and 2020, respectively, an increase of $99,000 or 24.5%. The increase is primarily related to the age of the convertible debt on our balance sheet which has debt discounts being amortized during the current period, in the prior period several notes had debt discount which had been fully amortized.

~~Derivative liability movement~~

~~The derivative liability movement was $495,589 and $(9,754,896) for the three months ended March 31, 2021 and 2020.~~respectively. The derivative liability movement represents the mark to market movements of variably priced convertible notes and warrants issued during the current and prior comparative period. The decrease in the mark to market movement of ~~$495,589 during the current period is~~$808,535 was primarily due to the conversion and repayment of several convertible ~~debt into equity~~notes during the ~~period.~~past twelve months and an overall reduction in our stock price, impacting favorably on the mark-to-market adjustment.

Foreign exchange movements

Foreign exchange movements was ~~$(79,492)~~$(95,556) and ~~$484,051~~$(79,492) for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively, representing the realized exchange gains and (losses) on monetary assets and liabilities settled during the current ~~period~~year as well as mark to market adjustments on monetary assets and liabilities reflected on the balance sheet and denominated in Canadian Dollars. The US Dollar ~~exchange rate deteriorated~~strengthened against the Canadian Dollar ~~compared to~~during the ~~prior~~current period, resulting in ~~the~~an unrealized loss on ~~foreign exchange.~~Canadian denominated assets.

Taxation

~~Net loss~~

~~Net loss of $2,368,156~~Taxation was $18,263 and ~~$10,338,286~~$0 for the three months ended March 31, 2022 and 2021, ~~and 2020,~~ respectively, ~~a decrease~~an increase of ~~$8,020,130~~$18,263 or ~~77.6%, primarily due to~~100.0%. A provision for taxation was created on the ~~decrease in operating expenses,~~profit realized on the decrease in the derivative liability movement, offset by the increase in the loss on convertible debentures and the increase in the fair value of warrants issued to convertible note holders during the current period.Evernia operations.

34 29

~~Contingency related to outstanding payroll tax liabilities~~Net loss

~~The Company also has not filed certain foreign assets forms due to the US Federal Government. A provision of $250,000~~Net loss was ~~made for any potential penalties due.~~

~~Liquidity~~$164,985 and ~~Capital Resources~~

~~Cash (used in) provided by operating activities was $(77,556) and $533,744~~$2,368,156 for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively, a decrease of ~~$611,300.~~$2,203,171 or 93.0%, is primarily due to the prior period movements on the fair value of warrants issued, the amortization of debt discount and the derivative liability movement, as discussed above.

Commitments and contingencies

The company has commitments under operating and finance leases as follows:

The amount of future minimum lease payments under finance leases as of March 31, 2022 is as follows:

	Amount
Remainder of 2022	$	7,372
2023		9,829
2024		9,829
2025		9,829
2026		7,902
	$	44,761

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

	Amount
Remainder of 2022	$	250,047
2023		348,677
2024		366,110
2025		384,416
2026		437,407
	$	1,786,657

The company also has commitments under convertible loans, short term loans, mortgage loans. If the convertible loans, as disclosed in note 10, above are not converted will need to be repaid, the short term loans disclosed in note 11 are repayable on demand and mortgage loans, disclosed on note 12 above, matures during July 2022.

If government assistance loans, are not forgiven, the Company will need to repay the balance outstanding, including interest thereon.

Liquidity and Capital Resources

Cash used in operating activities was $69,074 and $77,556 for the three months ended March 31, 2022 and 2021, respectively, a decrease of $8,482. The decrease is primarily due to the following:

·●

~~the~~A decrease in net loss of ~~$7,970,130,~~$2,203,171, as discussed under results of operations ~~above, offset by non-cash movements of $8,521,217, primarily movements on the derivative liability and the fair value of warrants issued on convertible debt;~~above.

·●

Offset by a decrease in the ~~translation difference on foreign currency balances~~ movement ~~was $586,990~~of non-cash items of $(1,981,024), primarily due to the movement in the amortization of debt discount of $(249,845), the movement in the fair value of warrants granted of $(976,788), and ~~includes~~ the ~~unrealized~~movement in derivative liabilities of $(808,535), offset by an increase in depreciation and amortization of $99,875, primarily related to the acquisition of Evernia.

●

Working capital movements ~~on intercompany balances which offsets~~increased by $213,666, primarily due to an increase in accounts receivable movement of $115,000 and a decrease in movements of accounts payable of $72,343 due to the ~~net cash generated by operating activities.~~payment of liabilities.

Cash used in investing activities was ~~$336,220~~$72,858 and ~~$9,542~~$336,220 for the three months ended March 31, 2022 and 2021, respectively. In the current period we invested in leasehold improvements and ~~2020, respectively,~~furniture and fittings to increase capacity at our Evernia facility. In the ~~increase is attributable to the advances made~~prior period we provided working capital of $336,220 to Evernia, ~~which acquisition we expect~~prior to ~~close within the second quarter.~~us acquiring it.

Cash provided by financing was $46,847 and $279,181 for the three months ended March 31, 2022 and ~~cash used in financing activities was $17,572.~~ 2021, respectively, a decrease of $232,334.

In the prior year we received net proceeds after the repayment of convertible notes of $305,000, during the current period ~~the Company raised convertible debt funding of $340,000 and~~we repaid ~~$35,000~~$201,733 of convertible notes as we reduce our debt to third parties.

We repaid $78,977 of third party debt during the current period and ~~$28,631 on~~received short term proceeds of $100,000 from promissory notes payable. We funded the ~~mortgage loan.~~above repayments from proceeds advanced by our CEO of $259,228 during the current period.

Over the next twelve months we estimate that the company will require approximately ~~$1.5~~$0.5 million in working capital as it continues to develop the Evernia facility and it is also exploring several other treatment center options and sources of patients throughout the country. The company may have to raise equity or secure debt. 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.

Recently Issued Accounting Pronouncements

The recent Accounting Pronouncements are fully disclosed in note 2 to our unaudited condensed consolidated financial statements.

Management does not believe that any other recently issued but not yet effective accounting pronouncements, if adopted, would have an effect on the accompanying unaudited condensed consolidated financial statements.

Off balance sheet arrangements

We do not maintain off-balance sheet arrangements nor do we participate in non-exchange traded contracts requiring fair value accounting treatment.

Inflation

The effect of inflation on our revenue and operating results was not significant.

Climate Change

We believe that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

The Company has adopted and maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is collected, recorded, processed, summarized and reported within the time periods specified in the rules of the Securities and Exchange Commission. The Company’s disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure. As required under Exchange Act Rule 13a-15, the Company’s management, including the Principal Executive Officer and the Principal Financial Officer, has conducted an evaluation of the effectiveness of disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that due to a lack of segregation of duties the Company’s disclosure controls and procedures are not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Subject to receipt of additional financing or revenue generated from operations, the Company intends to retain additional individuals to remedy the ineffective controls.

Changes in Internal Control

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our fiscal quarter ended March 31, ~~2021~~2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

36 31

PART II

Item 1. Legal Proceedings.

WeA 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, 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 1A. Risk Factors.

Not applicable because we are a smaller reporting company.

Item 2. Unregistered sales of equity securities and use of proceeds

On March 1, 2022, the Company, entered into a secured Promissory Note in the aggregate principal amount of $124,000 for net proceeds of $100,000 after an original issue discount of $24,000. The Note had a maturity date of April 1, 2022 and bears interest at the rate of zero percent per annum from the date on which the Note was issued until the same became due and payable.

On February 28, 2022, the Company issued 150,000,000 shares of common stock to Leonite in connection with a conversion notice received, converting principal of $149,250.

On May 3, 2022, the Company, entered into a secured Promissory Note in the aggregate principal amount of $76,250 for net proceeds of $61,000 after an original issue discount of $15,250. The Note had a maturity date of June 17, 2022 and bears interest at the rate of zero percent per annum from the date on which the Note was issued until the same became due and payable.

No shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(a)(2) promulgated thereunder due to the fact that the issuance 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.

Item 3. Defaults upon senior securities

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

Not applicable.

~~Not applicable.~~

Item 6. Exhibits

Exhibit No.

~~Description~~

Description


31.1	Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of 2002 *


32.1	Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002*

101.INS	Inline XBRL Instance Document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline Taxonomy Extension CAL XBRL Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
101	Cover Page Interactive Data File (embedded within the Inline XBRL Document)

101.INS XBRL Instance *

101.SCH XBRL Taxonomy Extension Schema *

101.CAL XBRL Taxonomy Extension Calculation *

101.DEF Taxonomy Extension Definition *

101.LAB Taxonomy Extension Labels *

101. PRE Taxonomy Extension Presentation *

* filed herewith

37 33

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ETHEMA HEALTH CORPORATION

Date: May ~~24, 2021~~16, 2022

By:/s/ Shawn E. Leon

Name: Shawn E. Leon

Title: Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	~~Position~~	Position	Date

/s/Shawn E. Leon		Chief Executive Officer (Principal Executive Officer),	May ~~24, 2021~~16, 2022
Shawn Leon		Chief Financial Officer (Principal Financial Officer), President and Director

/s/ John O’Bireck	~~Director~~	Director	May ~~24, 2021~~16, 2022
John O’Bireck

/s/ Gerald T. Miller	~~Director~~	Director	May ~~24, 2021~~16, 2022

38 34

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

1590 S. Congress Avenue West Palm Beach, Florida		33406
Address of Principal Executive Offices		Zip Code

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

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

	Three months ended March 31, 2021			Three months ended March 31, 2020

Revenues	$	90,793		$	83,542

Operating expenses
General and administrative		5,503			22,536
Rental expense		1,500			1,000
Professional fees		36			108,021
Salaries and wages		12,852			12,351
Depreciation		32,125			30,241
Total operating expenses		52,016			174,149

Operating income (loss)		38,777			(90,607	)

Other Income (expense)
Loss on conversion of convertible debentures		(1,106,648	)		(286,343	)
Penalty on convertible notes		(9,240	)		—
Fair value of warrants granted to convertible debt holders		(976,788	)		—
Exercise of warrants		(90,000	)		(92,952	)
Interest income		—			60
Interest expense		(137,677	)		(193,922	)
Debt discount		(502,677	)		(403,677	)
Derivative liability movement		495,589			(9,754,896	)
Foreign exchange movements		(79,492	)		484,051
Net loss before taxation		(2,368,156	)		(10,338,286	)
Taxation		—			—
Net loss		(2,368,156	)		(10,338,286	)
Preferred stock dividend		(30,847	)		—
Net loss available to ordinary shareholders		(2,399,003	)		(10,338,286	)
Accumulated other comprehensive income (loss)
Foreign currency translation adjustment		29,606			(185,813	)
Total comprehensive loss	$	(2,369,397	)	$	(14,865,276	)

Basic and diluted loss per common share	$	(0.00	)	$	(0.01	)
Weighted average common shares outstanding – Basic and diluted		2,143,692,378			956,540,071

	Series A Preferred				Common
	Shares		Amount		Shares		Amount		Additional Paid in Capital		Discount to par value			Comprehensive Income		Accumulated Deficit			Minority shareholders interest		Total
Balance as of December 31, 2020		4,000,000	$	40,000		2,027,085,665	$	20,270,857	$	23,344,885	$	(17,728,779	)	$	806,719	$	(42,459,781	)	$	700,000	$	(15,026,099	)
Fair value of warrants issued to convertible debt holders		—		—		—		—		1,207,214		—			—		—			—		1,207,214
Warrants exercised		—		—		59,999,999		600,000		—		(510,000	)		—		—			—		90,000
Conversion of convertible notes		—		—		175,763,466		1,757,635		97,000		(582,850	)		—		—			—		1,271,785
Foreign currency translation		—		—		—		—		—		—			29,606		—			—		29,606
Net loss		—		—		—		—		—					—		(2,368,156	)		—		(2,368,156	)
Dividends accrued		—		—		—		—		—		—			—		(30,847	)		—		(30,847	)
Balance as of March 31, 2021		4,000,000	$	40,000		2,262,849,130	$	22,628,492	$	24,649,099	$	(18,821,629	)	$	836,325	$	(44,858,784	)		700,000	$	(14,826,497	)

	Three months ended March 31, 2021			Three months ended March 31, 2020
Operating activities
Net loss	$	(2,368,156	)	$	(10,338,286	)
Adjustment to reconcile net loss to net cash (used in) operating activities:
Depreciation		32,125			30,241
Exercise of warrants		90,000			92,952
Fair value of warrants granted to convertible debt holders		976,788			—
Loss on conversion of convertible debentures		1,106,648			286,343
Stock based compensation for services		—			165,780
Amortization of debt discount		502,677			403,677
Derivative liability movements		(495,589	)		9,754,896
Non-cash interest accrual on escrow deposit		—			(23	)
Changes in operating assets and liabilities
Accounts receivable		—			49,007
Prepaid expenses and other current assets		14,638			3,000
Accounts payable and accrued liabilities		50,330			75,296
Taxes payable		12,983			10,861
Net cash (used in) provided by operating activities		(77,556	)		533,744
Investing activities
Investment in promissory note		—			(15,537	)
Deposits refunded		—			5,995
Other investments		(336,220	)		—
Net cash used in investing activities		(336,220	)		(9,542	)

Financing activities
Decrease in bank overdraft		—			(11,079	)
Repayment of mortgage		(28,631	)		(25,855	)
Proceeds from convertible notes		340,000			—
Repayment of convertible notes		(35,000	)		—
Proceeds from government assistance loans		15,797			—
Repayment of related party notes		(12,985	)		—
Proceeds from related party notes		—			19,362
Net cash provided by (used in) financing activities		279,181			(17,572	)

Effect of exchange rate on cash		79,325			(507,665	)

Net change in cash		(55,270	)		(1,035	)
Beginning cash balance		90,500			2,975
Ending cash balance	$	35,230		$	1,940

Supplemental cash flow information
Cash paid for interest	$	41,344		$	41,504
Cash paid for income taxes	$	—		$	—

Non-cash investing and financing activities
Conversion of debt to equity	$	165,137		$	531,005
Fair value of warrants issued	$	230,426		$	—

	March 31, 2021		December 31, 2020

Payroll taxes	$	145,200	$	143,410
HST/GST payable		87,493		73,503
US penalties due		250,000		250,000
Income tax payable		388,150		383,364
	$	870,843	$	850,277

	Amount
Within the next twelve months		118,538
Thereafter		3,865,866
Total	$	3,984,404

	No. of shares			Exercise price per share		Weighted average exercise price

Outstanding as of January 1, 2020		2,566,101,248			$0.00204 to $0.12	$	0.0044700
Granted		233,333,332			0.0017357		0.0017357
Adjustment due to price protection		152,017,272,726			0.0000324		0.0000324
Forfeited/cancelled		(2,366,666	)		0.0300000		0.0300000
Granted in terms of debt extinguishment		326,286,847			0.000675		0.0006750
Cancelled as part of debt extinguishment		(154,300,675,861	)		0.0000324		0.0000324
Exercised		(224,390,247	)		0.0004		0.0004000
Outstanding as of December 31, 2020		615,561,379			$0.000675 to $0.12		0.0113796
Granted		377,575,761			$0.0020500		0.0020500
Forfeited/cancelled		—			—		—
Exercised		(66,666,666	)		$0.0015000		$0.001500
Outstanding as of March 31, 2021		926,470,474			$0.000675 to $0.12	$	$0.0082883

	Warrants outstanding						Warrants exercisable
Exercise price	No. of shares		Weighted average remaining years		Weighted average exercise price		No. of shares		Weighted average exercise price

$0.000675		326,286,847		4.28				326,286,847
$0.03000		3,703,700		0.04				3,703,700
$0.00150		66,666,666		437				66,666,666
$0.00205		477,575,761		4.73				477,575,761
$0.12		52,237,500		0.64				52,237,500

		926,470,474		4.30	$	0.0082883		926,470,474	$	0.0082883

	March 31, 2020
	Rental Operations			In-Patient services			Total

Purchase of fixed assets		—			—			—
Assets
Current assets		2,883			208,793			211,676
Non-current assets		2,677,198			—			2,677,198
Liabilities
Current liabilities		(1,149,279	)		(27,237,487	)		(28,386,766	)
Non-current liabilities		(3,526,779	)		(730,235	)		(4,257,014	)
Intercompany balances		(704,122	)		704,122			—
Net liability position		(2,700,099	)		(27,054,807	)		(29,754,906	)