Ethema Health 10Q 2024 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2024

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

For the transition period from to

Commission File Number 000-54748

ETHEMA HEALTH CORPORATION.

(Exact Name of Registrant as Specified in its Charter)

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

950 Evernia Street West Palm Beach, Florida		33401
Address of Principal Executive Offices		Zip Code

(416) 500-0020

Registrant’s Telephone Number, Including Area Code

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

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

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

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

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

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

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Number of shares of common stock outstanding as of August 19, 2024 was 7,729,053,805.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

NOTE REGARDING COMPANY REFERENCES

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

FORM 10-Q

ETHEMA HEALTH CORPORATION

TABLE OF CONTENTS

		Page
	PART I - FINANCIAL INFORMATION
Item l.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of June 30, 2024 (Unaudited) and December 31, 2023	1
	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months and six months ended June 30, 2024 and 2023	2
	Unaudited Condensed Consolidated Statements of Stockholders’ Deficit for the six months ended June 30, 2024 and 2023	3
	Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023	4
	Notes to the Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33

	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	34
SIGNATURES		35

ETHEMA HEALTH CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS


	June 30, 2024			December 31, 2023
ASSETS		(Unaudited)

Current assets
Cash	$	31,102		$	68,573
Accounts receivable, net		272,872			313,338
Prepaid expenses		26,453			18,159
Other current assets		1,478			3,030
Related party receivables		13,571			—
Total current assets		345,476			403,100
Non-current assets
Property and equipment		762,979			508,401
Intangible assets, net		715,961			894,952
Right of use assets		10,052,463			9,323,723
Deposits paid		472,393			389,000
Total non-current assets		12,003,796			11,116,076
Total assets	$	12,349,272		$	11,519,176

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities
Accounts payable and accrued liabilities	$	507,899		$	352,101
Convertible notes, net of discounts		2,169,570			4,419,927
Short-term notes		2,379,445			680,672
Promissory note		267,500			—
Receivables funding		284,064			211,961
Government assistance loans		15,062			14,962
Operating lease liability		275,457			38,563
Finance lease liability		8,714			8,426
Related party payables		2,638,078			2,572,292
Total current liabilities		8,545,789			8,298,904
Non-current liabilities
Convertible notes, net of discounts		1,730,048			—
Government assistance loans		12,920			20,520
Promissory note		197,500			—
Operating lease liability		9,990,756			9,383,557
Finance lease liability		12,017			16,475
Total non-current liabilities		11,943,241			9,420,552
Total liabilities		20,489,030			17,719,456

Preferred stock - Series B; $1.00 par value 10,000,000 authorized, 0 and 400,000 shares issued and outstanding as of June 30, 2024 and December 31, 2023.		—			—

Stockholders’ deficit
Preferred stock - Series A; $0.01 par value, 10,000,000 authorized, 4,000,000 shares issued and outstanding as of June 30, 2024 and December 31, 2023		40,000			40,000
Common stock - $0.01 par value, 10,000,000,000 shares authorized; 3,729,053,805 and 3,729,053,805 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively		37,290,539			37,290,539
Additional paid-in capital		25,087,925			26,187,925
Discount for shares issued below par value		(27,363,367	)		(27,363,367	)
Accumulated deficit		(43,194,855	)		(42,355,377	)
Total stockholders’ deficit		(8,139,758	)		(6,200,280	)
Total liabilities and stockholders’ deficit	$	12,349,272		$	11,519,176

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 INCOME (LOSS)


	Three months ended June 30, 2024			Three months ended June 30, 2023			Six months ended June 30, 2024			Six months ended June 30, 2023

Revenues	$	1,490,100		$	1,565,959		$	2,790,200		$	2,866,005

Operating expenses
General and administrative		363,230			265,165			637,775			506,402
Rent expense		274,130			105,933			539,263			220,497
Management fees		—			215,503			—			243,003
Professional fees		301,132			177,910			455,682			289,114
Salaries and wages		717,032			629,707			1,440,773			1,221,743
Depreciation and amortization		112,086			139,595			223,292			278,074
Total operating expenses		1,767,610			1,533,813			3,296,785			2,758,833

Operating loss (income)		(277,510	)		32,146			(506,585	)		107,172

Other Income (expense)
Other income		—			339			—			339
Penalty on convertible debt		—			(34,688	)		—			(34,688	)
Extension fee – property purchase		—			(130,000	)		—			(130,000	)
Interest income		523			—			1,098			—
Interest expense		(106,914	)		(143,981	)		(200,100	)		(301,077	)
Amortization of debt discount		(75,240	)		(87,526	)		(138,402	)		(164,447	)
Foreign exchange movements		(6,134	)		(87,791	)		4,511			(90,746	)
Net loss before income taxes		(465,275	)		(451,501	)		(839,478	)		(613,447	)
Income taxes		—			219,346			—			205,575
Net loss		(465,275	)		(232,155	)		(839,478	)		(407,872	)
Net loss (income) attributable to non-controlling interest		101,842			(93,880	)		101,842			(96,848	)
Net loss allocable to Ethema Health Corporation Stockholders		(363,433	)		(326,035	)		(737,636	)		(504,720	)
Preferred stock dividend		—			(5,984	)		—			(11,901	)
Preferred stock dividend – non controlling interest		—			(17,822	)		—			(35,324	)
Net loss available to common shareholders of Ethema Health Corporation		(363,433	)		(349,841	)		(737,636	)		(551,945	)
Accumulated other comprehensive income (loss)
Foreign currency translation adjustment		—			6,569			—			5,065

Total comprehensive loss	$	(363,433	)	$	(343,272	)	$	(737,636	)	$	(546,880	)
Loss per share - Basic and diluted	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)
Weighted average common shares outstanding
Basic and diluted		3,729,053,805			3,729,053,805			3,729,053,805			3,729,053,085

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				Additional paid-in			Discount to			Accumulated other Comprehensive		Accumulated			Non-controlling shareholders
	Shares		Amount		Shares		Amount		Capital			par value			Income		Deficit			interest		Total
Balance as of December 31, 2023		4,000,000	$	40,000		3,729,053,805	$	37,290,539	$	26,187,925		$	(27,363,367	)	$	—		(42,355,377	)		—		(6,200,280	)
Net loss		—		—		—		—		—			—			—		(374,203	)		—		(374,203	)
Balance as of March 31, 2024		4,000,000	$	40,000		3,729,053,805	$	37,290,539	$	26,187,925		$	(27,363,367	)	$	—	$	(42,729,580	)	$	—	$	(6,574,483	)
Acquisition of minority shareholders interest		—		—		—		—		(1,201,842	)		—			—		—			101,842		(1,100,000	)
Net loss		—		—		—		—		—			—			—		(363,433	)		(101,842)		(465,275	)
Balance as of June 30, 2024		4,000,000	$	40,000		3,729,053,805	$	37,290,539	$	24,986,083		$	(27,363,367	)	$	—		(43,093,013	)		—		(8,139,758	)


	Series A Preferred				Common				Additional paid-in		Discount to			Accumulated other Comprehensive			Accumulated			Non-controlling shareholders
	Shares		Amount		Shares		Amount		Capital		par value			Income			Deficit			interest			Total
Balance as of December 31, 2022		4,000,000	$	40,000		3,729,053,805	$	37,290,539	$	23,419,917	$	(27,363,367	)	$	(5,065	)	$	(43,484,751	)	$	870,184		$	(9,232,543	)
Foreign currency translation		—		—		—		—		—		—			(1,504	)		—			—			(1,504	)
Net loss		—		—		—		—		—					—			(178,685	)		2,968			(175,717	)
Dividends accrued		—		—		—		—		—		—			—			(23,419	)		—			(23,419	)
Balance as of March 31, 2023		4,000,000	$	40,000		3,729,053,805	$	37,290,539	$	23,419,917	$	(27,363,367	)	$	(6,569	)	$	(43,686,855	)	$	873,152		$	(9,433,183	)
Disposal of subsidiary to related party		—		—		—		—		2,034,885		—			—			—			(700,000	)		1,334,885
Deemed extinguishment of debt by related party		—		—		—		—		461,184		—			—			—			—			461,184
Foreign currency translation		—		—		—		—		—		—			6,569			—			—			6,569
Net loss		—		—		—		—		—		—			—			(326,035	)		93,880			232,155
Dividends accrued		—		—		—		—		—		—			—			(23,806	)		—			(23,806	)
Balance as of June 30, 2023		4,000,000	$	40,000		3,729,053,805	$	37,290,539	$	25,915,986	$	(27,363,367	)	$	—		$	(44,036,696	)	$	267,032		$	(7,886,506	)

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

ETHEMA HEALTH CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS


	Six months ended June 30, 2024			Six months ended June 30, 2023
Operating activities
Net loss	$	(839,478	)	$	(407,872	)
Adjustment to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		223,292			278,074
Amortization of debt discount		138,401			164,447
Amortization of right of use asset		15,517			142,657
Penalty on convertible promissory notes		—			34,688
Deferred tax movement		—			(31,064	)
Changes in operating assets and liabilities
Accounts receivable		171,106			(79,460	)
Prepaid expenses and other current assets		(6,741	)		(28,034	)
Accounts payable and accrued liabilities		(71,854	)		339,697
Operating lease liabilities		99,837			(140,434	)
Taxes payable		—			(237,211	)
Net cash (used in) provided by operating activities		(269,920	)		35,488
Investing activities
Purchase of property and equipment		(58,880	)		(21,642	)
Acquisition of business		(240,000	)		—
Acquisition of minority shareholders interest		(625,000	)		—
Deposits paid		(83,393	)		—
Net cash used in investing activities		(1,007,273	)		(21,642	)
Financing activities
Repayment of mortgage loans		—			(58,320	)
Repayment of convertible notes		—			(10,000	)
Proceeds from short-term notes		1,732,000			—
Repayment of short-term notes		(570,000	)		—
Repayment of promissory note		(10,000	)		—
Repayment of government assistance loans		(7,493	)		(7,147	)
Repayment of third-party loans		—			(25,970	)
Repayment of finance leases		(4,169	)		(3,909	)
Proceeds from receivables funding		295,000			265,750
Repayment of receivables funding		(232,733	)		(448,905	)
Proceeds from related party payables		52,215			78,246
Net cash provided by (used in) financing activities		1,254,820			(210,255	)
Effect of exchange rate changes on cash		(15,098	)		83,460
Net change in cash		(37,471	)		(112,949	)
Beginning cash balance		68,573			140,757
Ending cash balance	$	31,102		$	27,808
Supplemental cash flow information
Cash paid for interest	$	222,109		$	90,888
Cash paid for income taxes	$	—		$	—
Non-cash investing and financing activities
Promissory note issue on acquisition of minority shareholders interest		475,000		$	—
Disposal of subsidiary to related party	$	—		$	1,334,885
Deemed extinguishment of debt by related party	$	—		$	461,184

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

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of business

Since 2010, the Company has operated addiction treatment centers. Initially the Company operated an addiction treatment center in Ontario Canada under its Greenestone Muskoka clinic, which was sold on February 14, 2017. Simultaneously with this sale the Company purchased buildings and operated an addiction treatment center in Delray Beach Florida under its Addiction recovery Institute of America subsidiary with a license obtained in December 2016, initially though owned properties in Delray Beach and subsequently though leased properties in West Palm Beach, Florida. Since June 30, 2020, the Company has been actively involved in the management of a treatment center operated by Evernia in West Palm Beach Florida. On July 1, 2021, the Company closed on the acquisition of 75% of ATHI, which owns 100% of Evernia, once the probationary approval of a license was obtained from the Department of Children and Family Services of Florida. Evernia is currently the only active treatment center operated by the Company.

Acquisition of minority shareholders interest in ATHI

On May 15, 2024, the Company entered into a Stock Purchase Agreement whereby it acquired the remaining 25% of ATHI representing 5,000,000 shares from the minority shareholder for gross proceeds of $1,100,000. The Company paid an initial deposit of $25,000 and on closing an additional $600,000. The Company issued a non-interest-bearing promissory note for the remaining balance of $475,000, which promissory note is repayable in installments of $10,000 a month on each monthly anniversary date of the agreement for months one to eight (eight installments) and months ten through seventeen (eight installments), and payments of $157,500 on month nine and month eighteen, for a total of $475,000.

The Company sold its real estate on which its Greenstone Muskoka clinic operated during the prior year.

Acquisition of assets and assignment of lease and sub-lease for Boca cove Detox Center

On March 22, 2024, the Company executed a LOI to acquire certain assets, including furniture, equipment inventory and supplies of Boca Cove Detox, LLC, along with the assignment of lease and sub-lease for premises located at 899 Meadow Avenue, Boca Raton, Florida. On May 1, 2024 the Company, through its subsidiary Evernia Health Center LLC, entered into a Definitive Agreement whereby the Company would assume the lease for suites 100,101, 201, 202 and 203 located at 899 Meadows Road, Boca Raton, Florida (the “Leased Premises”) and the furniture, fixtures and equipment located therein, upon the assignment of the lease from the property owner. The lease was assigned on June 10, 2024 and the Company entered into a Bill of Sale to give effect to the Definitive Agreement.

The purchase price was $240,000 which was settled by a deposit of $20,000 and a cash payment of $220,000 and the payment to the Seller of $83,393 for the assumption of the security deposit held by the landlord of the Leased Premises located at 899 Meadows Road

2. Summary of significant accounting policies

Financial Reporting

The (a) unaudited condensed consolidated balance sheets as of June 30, 2024, and as of December 31, 2023, which has 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 and six months ended June 30, 2024 are not necessarily indicative of results that may be expected for the year ending December 31, 2024. 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, 2023, filed with the Securities and Exchange Commission (“SEC”) on May 7, 2024.

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

a) Use of Estimates

The preparation of 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 of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2. Summary of significant accounting policies (continued)

b) Principles of consolidation and foreign translation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and all of its subsidiaries. All intercompany transactions and balances have been eliminated on consolidation.

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

●

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

●

Certain non-monetary assets and liabilities and equity at historical rates.

●

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

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

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

On June 30, 2023, the Company disposed on Cranberry Cove Holdings whose functional currency was Canadian Dollars, all remaining subsidiaries have the U.S. dollar as a functional currency.

The relevant translation rates for the prior year were as follows: For the six months ended June 30, 2023, a closing rate of CDN$1 equals US$0.7553 and an average exchange rate of CDN$1 equals US$0.7420.

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. There were no cash equivalents at June 30, 2024 and December 31, 2023.

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.

d) 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 unaudited condensed consolidated financial statements is recorded at the net amount expected to be received. The Company’s primary collection risks are (i) the risk of overestimating net revenues at the time of billing that may result in the Company receiving less than the recorded receivable, (ii) the risk of non-payment as a result of commercial insurance companies denying claims, (iii) the risk that patients will fail to remit insurance payments to the Company when the commercial insurance company pays out-of-network claims directly to the patient, (iv) resource and capacity constraints that may prevent the Company from handling the volume of billing and collection issues in a timely manner, (v) the risk that patients do not pay the Company for their self-pay balances (including co-pays, deductibles and any portion of the claim not covered by insurance) and (vi) the risk of non-payment from uninsured patients.

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2. Summary of significant accounting policies (continued)

e) Allowance for credit losses, Contractual and Other Discounts

The Company recognizes revenue based on historical collections received from healthcare providers, recognizing only a percentage of revenues actually billed. Effectively recognizing revenue net of any expected billing differentials. Based on the Company’s collection experience, the percentage of revenue recognized is adjusted on a periodic basis, thereby considering expected credit losses in the revenue recognition process. The revenue we recognize is already net of expected credit losses.

We constantly evaluate our collections experience and consider the market conditions and current economic developments facing the Company’s operations. We have not experienced significantly different collections to revenues we have recognized and we have not seen any deterioration in the payment patterns from the healthcare providers that the Company works with, we cannot predict with any certainty that the payment patterns the Company experiences may change and we may be required to adjust the percentage of revenue recognized.

f) Leases

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

Leases which imply that the Company will retain ownership at the end of the lease term are classified as financial leases, are included in property and equipment with a corresponding financial liability raised at the date of lease inception. Interest incurred on financial leases are expensed using the effective interest rate method.

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

Property and equipment

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

h) Long Lived Assets

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

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

i) Intangible assets

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

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

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

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2. Summary of significant accounting policies (continued)

j) Derivatives

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

k) Financial instruments

The Company initially measures its financial assets and liabilities at fair value. The Company subsequently measures all its financial assets and financial liabilities at amortized cost.

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

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

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

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

●

Level 1. Observable inputs such as quoted prices in active markets;

●

Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

●

Level 3. Unobservable inputs in which there is little or no market data, which requires the reporting entity to develop its own assumptions.

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

l) Related parties

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

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2. Summary of significant accounting policies (continued)

m) Revenue recognition

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

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

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

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 $272,872 and $313,338 at June 30, 2024 and December 31, 2023, 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)

n) Income taxes

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

ASC Topic 740 contains a two-step approach to recognizing and measuring uncertain tax positions taken or expected to be taken in a tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company recognizes interest and penalties accrued on unrecognized tax benefits within general and administrative expense. To the extent that accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction in general and administrative expenses in the period that such determination is made. The tax returns for fiscal 2019, through 2023 are subject to audit or review by the US tax authorities.

o) Net income per Share

Basic net income per share is computed on the basis of the weighted average number of common stock outstanding during the year.

Diluted net income 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 per share are excluded from the calculation.

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

p) Stock-based compensation

Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award and is recognized as expense over the employee’s requisite service period or vesting period on a straight-line basis. Stock-based compensation expense recognized in the unaudited condensed 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 no awards with performance conditions and no awards dependent on market conditions.

There were no stock-based compensation awards that vested during the three and six months ended June 30, 2024 and 2023 and there was no stock-based compensation recorded in the unaudited condensed consolidated financial statements.

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2. Summary of significant accounting policies (continued)

q) Financial instruments risks

The Company is exposed to various risks through its financial instruments. The following analysis provides a measure of the Company’s risk exposure and concentrations at the balance sheet dates, June 30, 2024 and December 31, 2023.

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 approximately $8.2 million, and an accumulated deficit of approximately $43.2 million. The Company is dependent upon the raising of additional capital 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 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.

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, short term loans, third party loans and government assistance loans as of June 30, 2024. 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 has minimal disclosure to certain foreign currency payables and loans.

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.

r) Recent accounting pronouncements

The Financial Accounting Standards Board (“FASB”) issued additional updates during the six months ended June 30, 2024. None of these standards are either applicable to the Company or require adoption at a future date and none are expected to have a material impact on the Company’s consolidated financial statements upon adoption.

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3. Going concern

The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with US GAAP applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations in the normal course of business. At June 30, 2024 the Company has a working capital deficiency of $8.2 million, and total liabilities in excess of assets in the amount of $8.1 million. Management believes that current available resources will not be sufficient to fund the Company’s planned expenditures over the next 12 months. These factors, individually and collectively indicate that a material uncertainty exists that raises substantial doubt about the Company's ability to continue as a going concern for one year from the date of issuance of these condensed interim consolidated financial statements.

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 unaudited 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 as a going concern.

4. Acquisition of minority shareholders interest in ATHI

On May 15, 2024, the Company entered into a Stock Purchase Agreement whereby it acquired the remaining 25% of ATHI representing 5,000,000 shares from the minority shareholder for gross proceeds of $1,100,000. The Company paid an initial deposit of $25,000 and on closing an additional $600,000. The Company issued a non-interest-bearing promissory note for the remaining balance of $475,000, which promissory note is repayable in installments of $10,000 a month on each monthly anniversary date of the agreement for months one to eight (eight installments) and months ten through seventeen (eight instalments), and payments of $157,500 on month nine and month eighteen, for a total of $475,000.

The acquisition of the minority shareholders interest was accounted for in terms of ASC 810, Consolidation.-45.

Schedule of acquisition of the minority shareholders interest
	Amount
Purchase price
Cash	$	625,000
Promissory note		475,000
Total		1,100,000
Allocation of purchase price
Minority shareholders interest		101,842
Additional paid in capital		(1,201,842	)
Total	$	(1,100,000	)

5. Acquisition of Boca Cove Detox

Schedule of acquisition of boca cove detox
	Amount
Purchase price
Cash	$	323,393
Total		323,393
Allocation of purchase price
Property and equipment		240,000
Deposit assumed on leased premises		83,393
Total	$	323,393

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6. Disposal of subsidiary

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

Immediately prior to the disposal of Cranberry Cove Holdings, the Company assumed the loan owed to a third party of $779,005 and the loan owing to Leon Developments of $1,973,837, Leon developments, a related party, owned by the Company’s CEO, Shawn Leon. In addition, the Company forgave the intercompany debt owing by Cranberry Cove Holdings of $4,566,848.

The assets and liabilities disposed of were as follows:

Schedule of assets and liabilities disposed
	Net book value
Assets
Other receivables	$	12,015
Property and equipment		2,420,499
Total		2,432,514
Liabilities
Accounts payable and accrued liabilities		(196,859	)
Government assistance loans		(45,317	)
Mortgage loan		(3,525,223	)
Total		(3,767,399	)

Disposal of subsidiary to related party – recorded as additional paid in capital	$	(1,334,885	)

The minority shareholders interest related to the Series A preferred stock in Cranberry Cove Holdings was recorded as a deemed contribution to the Company and credited to additional paid in capital, resulting in a total credit to additional paid in capital of $2,034,885.

The cancellation of the Series B shares, were owned by Leonite Capital, a related party, was deemed to be an extinguishment of debt by a related party and recorded as a credit to additional paid in capital of $461,184.

7. Property and equipment

Acquisition and simultaneous disposition of property

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

On February 27, 2023 the Company signed a listing agreement with Stream Capital Partners listing 950 for sale at a price of $9,568,000 with the intention of identifying a buyer that would purchase and then potentially enter into a lease agreement with the Company.

On May 4, 2023 the Company signed a Letter of Intent with Pontus Net Lease Advisers, LLC to sell 950 for $8,500,000 and lease the property to the Company for a term of twenty years with two ten-year extensions. On May 19, 2023, the Company signed a purchase and sale agreement with Pontus Net Lease Advisors to sell 950 for $8,500,000. On August 4, 2023, the Company completed both the purchase of 950 from Evernia Station Limited Partnership and the subsequent sale of 950 to Pontus Net Lease Advisors, LLC.

Simultaneously with the closing of the purchase and sale agreements, on August 4, 2023, the Company entered into a long-term lease for 950 with an initial term of twenty years, and two ten-year extension options. The lessor is Pontus EHC Palm Beach, LLC, a Delaware limited liability company and a portfolio company of Pontus Net Lease Advisors, LLC. The lease is absolutely net and the lease cost for the initial year is $748,000 paid monthly. The lease increases at a rate of 2.75% per year for a total term lease obligation of $19,595,653 over the initial twenty-year term. The Lease is personally guaranteed by the Company President and the guarantee may be released after 5 years based on certain financial and performance metrics being met.

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7. Property and equipment (continued)

Acquisition and simultaneous disposition of property (continued)

The Company paid gross proceeds of $1,449,000 to Leonite Capital and Leonite Fund I, LP in settlement of all amounts outstanding to both entities. In addition, $65,450 was paid to Ed Blasiak to settle the convertible promissory owing to him and $179,474 was paid to Joshua Bauman to settle the convertible promissory note owing to him, and $260,548 was paid to Mirage Realty, LLC to settle the senior secured promissory note owing to Mirage.

The details of the property purchase and subsequent sale are as follows:

Schedule of property purchase and subsequent sale
	Amount
Purchase of 950 Evernia Street property
Purchase price	$	5,500,000
Fees and expenses related to property purchase		109,276
Total acquisition cost		5,609,276

Proceeds on sale		8,500,000
Fees and expenses related to disposal of the property		(406,552	)
Net proceeds on disposal of property		8,093,448

Gain on sale of property	$	2,484,172

Acquisition of Boca Cove Detox

On May 1, 2024 the Company, through its subsidiary Evernia Health Center LLC, entered into a Definitive Agreement whereby the Company would assume the lease for suites 100,101, 201, 202 and 203 located at 899 Meadows Road, Boca Raton, Florida (the “Leased Premises”) and the furniture, fixtures and equipment located therein, upon the assignment of the lease from the property owner. The lease was assigned on June 10, 2024 and the Company entered into a Bill of Sale to give effect to the Definitive Agreement. The purchase price of the assets was $240,000.

Property and equipment consists of the following:

Schedule of property and equipment
		June 30, 2024							December 31, 2023
	Useful lives	Cost		Accumulated depreciation			Net book value		Net book value
Leasehold improvements	Life of lease		513,919		(112,665	)		401,254		371,308
Furniture and fittings	6 years		395,235		(60,303	)		334,932		104,715
Vehicles	5 years		55,949		(34,655	)		21,294		26,889
Computer equipment	3 years		8,925		(3,426	)		5,499		5,489
		$	974,028	$	(211,049	)	$	762,979	$	508,401

Depreciation expense for the three months ended June 30, 2024 and 2023 was $22,591 and $50,589, respectively, and for the six months ended June 30, 2024 and 2023 was $44,302 and $99,084, respectively.

On June 30, 2023, the Company sold its interest in Cranberry Cove Holdings to Leonite Capital, which includes the land and property. Refer Note 6 above.

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Intangibles

Intangible assets consist of the following:

Schedule of intangible assets
	Useful lives	June 30, 2024							December 31, 2023
		Cost		Accumulated amortization			Net book value		Net book value
Health care Provider license	5 years	$	1,789,903	$	(1,073,942	)	$	715,961	$	894,952

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 each of the three months ended June 30, 2024 and 2023 and $178,990 for each of the six months ended June 30, 2024 and 2023.

Leases

The Company acquired ATHI on July 1, 2021, ATHI’s wholly owned subsidiary had entered into an operating lease agreement for certain real property located at 950 Evernia Street, West Palm Beach, Florida, with effect from February 1, 2019 for a period of three years, expiring on 1 February 2022. Under the terms of the lease agreement, the lease was extended during October 2021 for a further 5-year period until 1 February 2027.

As described in note 7 above, on October 3, 2022 the Company entered into a purchase and sale agreement with Evernia Station Limited Partnership for the purchase of 950 Evernia Street, West Palm Beach, Florida, the property in which it operates its treatment center, for gross proceeds of $5,500,000. On August 3, 2023, after 6 addendums to the agreement, the Company closed on the acquisition of the property. This resulted in the termination of the lease with Evernia station, resulting in the reversal of the remaining right-of-use asset of $1,226,080 and the associated operating lease liability of $1,328,803, which liability included $102,723 of accrued rental, which was offset against the rental expense.

On August 4, 2023, the Company entered into a long-term lease for 950 Evernia Street, West Palm Beach, Florida with an initial term of twenty years, and two ten-year extension options. The lessor is Pontus EHC Palm Beach, LLC , a Delaware limited liability company and a portfolio company of Pontus Net Lease Advisors, LLC. The lease is absolutely net and the lease cost for the initial year is $748,000 paid monthly. The lease increases at a rate of 2.75% per year for a total term lease obligation of $19,595,653 over the initial twenty-year term. The Lease is personally guaranteed by the Company President and the guarantee may be released after 5 years based on certain financial and performance metrics being met. Due to the initial lease term of twenty years, the Company is not certain that the extension periods will be exercised at this point in time and accordingly, these have been excluded from the present value of the minimum future lease payments.

To determine the present value of minimum future lease payments for operating leases at August 4, 2023, the Company was required to estimate a rate of interest that we would have to pay to borrow on a collateralized basis over a similar term in a similar economic environment (the "incremental borrowing rate" or "IBR").

The Company determined the appropriate IBR by identifying a reference rate and making adjustments that take into consideration financing options and certain lease-specific circumstances. For the reference rate, the Company used the Fannie Mae, in excess of $3,000,000 rate based on an 80% value to loan ratio, averaging the 15- and 30-year indicative rates, resulting in a rate of 7.70%. The Company determined that 7.70% per annum was an appropriate incremental borrowing rate to apply to its real estate operating lease.

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

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

9. Leases (continued)

The assigned lease has a remaining term of 3 years, expiring on June 30, 2027, with an initial monthly lease cost of $21,843 from July 1, 2024 to December 31, 2024, escalating by 2.9% per annum, each annual period being a calendar year.

To determine the present value of minimum future lease payments for operating leases at June 10, 2024, the Company was required to estimate a rate of interest that we would have to pay to borrow on a collateralized basis over a similar term in a similar economic environment (the "incremental borrowing rate" or "IBR").

The Company determined the appropriate IBR by identifying a reference rate and making adjustments that take into consideration financing options and certain lease-specific circumstances. For the reference rate, the Company used the Bank rate 3/1 adjustable-rate mortgage which represents the average rate for several mortgage lenders in the market of 6.36%. The Company determined that 6.36% per annum was an appropriate incremental borrowing rate to apply to its real estate operating lease.

The present value of the future minimum lease payments was valued at $744,256 on June 10, 2024.

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

Schedule of right of use assets are included in the consolidated balance
	June 30, 2024		December 31, 2023
Non-current assets
Right-of-use assets – finance leases, net of depreciation, included in Property and equipment	$	21,294	$	26,889
Right-of-use assets - operating leases, net of amortization	$	10,052,463	$	9,323,723

Lease costs consists of the following:

Schedule of lease costs
	Six months ended June 30,
	2024		2023
Finance lease cost:
Amortization of right-of-use assets	$	5,595	$	5,595
Interest expense on finance lease liabilities		771		1,031
Total finance lease cost		6,366		6,626

Operating lease cost	$	374,000	$	173,644
Lease cost	$	380,366	$	180,270

Other lease information:

Schedule of other lease
	Six months ended June 30,
	2024			2023
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases	$	(771	)	$	(1,031	)
Operating cash flows from operating leases		(374,000	)		(173,644	)
Financing cash flows from finance leases		(4,144	)		(3,883	)
Cash paid for amounts included in the measurement of lease liabilities	$	(378,915	)	$	(178,558	)

Weighted average lease term – finance leases		2 years and 5 months			3 years and 4 months
Weighted average remaining lease term – operating leases		18 years			3 years and 7 months

Discount rate – finance leases		6.58	%		6.61	%
Discount rate – operating leases		7.60	%		4.64	%

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

9. Leases (continued)

Maturity of Leases

Finance lease liability

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

Schedule of future minimum lease payments under finance leases
	Amount
Remainder of 2024	$	4,915
2025		9,829
2026		6,195
2027		1,707
Total finance lease		22,646
Imputed interest		(1,915	)
Total finance lease liability	$	20,731
Disclosed as:
Current portion	$	8,714
Non-Current portion		12,017
Lease liability	$	20,731

Operating lease liability

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

Schedule of future minimum lease payments under operating leases
	Amount

Remainder of 2024	$	511,915
2025		1,045,192
2026		1,074,288
2027		961,526
2028		841,379
2029 and thereafter		15,358,663
Total undiscounted minimum future lease payments		19,792,963
Imputed interest		(9,526,750	)
Total operating lease liability	$	10,266,213

Disclosed as:
Current portion	$	271,457
Non-Current portion		9,990,756
Lease liability	$	10,266,213

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		June 30, 2024		December 31, 2023
Auctus Fund, LLC		0.0	%	On Demand	$	70,000	$	—	$	70,000	$	70,000

Joshua Bauman		10.0	%	August 9, 2024		120,776		6,996		127,772		121,766

Series N convertible notes		6.0	%	December 31, 2024 to December 31, 2025		2,779,000		922,846		3,701,846		4,228,161

					$	2,969,776	$	929,842	$	3,899,618	$	4,419,927
Disclosed as follows:
Short-term									$	2,169,570	$	4,419,927
Long-term										1,730,048		—
									$	3,899,618	$	4,419,927

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

10. Short-term Convertible Notes (continued)

Joshua Bauman

On August 9, 2023, the Company issued a convertible promissory note to Bauman, in the aggregate principal amount of $150,000. The note bears interest at 10.0% per annum and matures on August 9, 2024. The note is convertible into shares of common stock at a conversion price at the option of the holder at $0.001 per share, adjusted for anti-dilution provisions. The note is convertible into common stock at the option of the holder after the expiration of six months from the issuance date, in addition, should the note reach its maturity date, August 9, 2024, the note will automatically convert into shares of common stock at the conversion price, subject to anti-dilution provisions.

Series N convertible notes

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

The maturity dates of the Series N convertible notes were extended to December 31, 2024, with the exception of 5 series N convertible notes issued to one investor with an aggregate principal outstanding of $1,273,000, which was extended to December 31, 2025. No consideration was provided to the investors for the maturity date extensions.

Between April 30, 2024 and May 10, 2024, three series N convertible note holders, converted principal of $450,000 into Series R promissory notes after the repayment of $151,475 of accrued interest.

During the current year, the Company repaid $17,250 of accrued interest to certain Series N convertible note holders.

11. Short-term Notes

The short-term notes consist of the following:

Schedule of short-term notes
Description	Interest Rate			Maturity date	Principal		Accrued Interest		Unamortized debt discount			June 30, 2024 Amount		December 31, 2023 Amount
LXT Biotech		6.0	%	On Demand	$	97,268	$	30,475	$	—		$	127,743	$	129,184

Mirage Realty		10.0	%	June 15, 2024		—		—		—			—		236,421
		6 to 18	%	November 15, 2024		600,000		4,500		—			604,500		—

Third Party		12.0	%	On demand		290,785		31,070		—			321,855		315,067

Revolving line of credit		60.0	%	May 1,2024		—		—		—			—		—
		60.0	%	May 14, 2024		—		—		—			—		—
		60.0	%	May 12, 2024		—		—		—			—		—
		60	%	July 14, 2024		131,000		10,044		(234	)		140,810		—
		60	%	August 13, 2024		101,000		2,693		(734	)		102,959		—

Series R Promissory notes		7.5	%	March 31, 2025		1,155,000		13,819		(87,241	)		1,081,578		—

Total convertible notes payable					$	2,375,053	$	92,601	$	(88,209	)	$	2,379,445	$	680,672

LXR Biotech

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

This note has not been repaid, is in default and remains outstanding.

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

11. Short-term Notes (continued)

Mirage Realty, LLC

On November 15, 2023, the Company, entered into a senior secured promissory note in the aggregate principal amount of $250,000 for net proceeds of $223,500 after an original issue discount and fees of $26,500. The note earns interest at 10% per annum and originally matured on March 15, 2024. The maturity date was extended to April 15, 2024, with no change to the terms of the note or any additional consideration paid to the noteholder.

On May 13, 2024, the Company repaid principal of $250,000 and accrued interest thereon of $15,000, thereby extinguishing the debt.

On May 15, 2024, the Company, entered into a senior secured promissory note in the aggregate principal amount of $600,000. The note earns interest at 6% per annum for the first two months and 9% per annum for the following two months and 18% for the next two months. The note matures on November 15, 2024. The proceeds of the note were used to acquire the minority shareholder interest in ATHI, refer note 4 above.

Third party note

On April 12, 2019, Eileen Greene, a related party, assigned CDN$1,000,000 of the amount owed by the Company to her, to a third party. The loan bears interest at 12% per annum which the Company agreed to pay. This loan was assumed by the Company on the disposal of CCH to Leonite Capital as disclosed in note 4 above.

During April and May 2023, the Company made interest repayments of CDN$35,000 (approximately $25,970) on the third-party loan. Between August 9 and August 10, 2023, the Company made principal repayments of CDN$345,890 ($257,775) and interest repayments of CDN$104,110 (approximately $77,515).

Revolving line of credit

On February 1, 2024 Ethema Health Corporation, American Treatment Holdings Inc, and Evernia Health Center LLC entered into a secured revolving line of credit agreement (“ Agreement”) with Testing 123, LLC. The draw under the is limited to a maximum of 80% of the Receivables balance as provided to the Lender, subject to the maximum borrowing under the Term Loan Agreement of $1,000,000. The interest on the term loan is 5% per month. The revolving credit line is valid for a period of two years and each draw will have a maturity date that is two months from the draw date, with an origination fee of $1,000 per draw. Each loan may be prepaid at any time without penalty. The Company will pay a commitment fee of $40,000 to the borrower in common shares on the completion of a public offering, unless no such offering takes place within a year, whereby the outstanding principal will be increased by $40,000. The revolving credit line is secured by all assets, tangible and intangible of the Company and its direct and indirect subsidiaries, American Treatment Holdings, Inc. and Evernia Health Center, LLC.

12. Promissory Note

On May 15, 2024, the Company entered into a Stock Purchase Agreement whereby it acquired the remaining 25% of ATHI representing 5,000,000 shares from the minority shareholder for gross proceeds of $1,100,000. The Company paid an initial deposit of $25,000 and on closing an additional $600,000. The Company issued a non-interest bearing promissory note for the remaining balance of $475,000, which promissory note is repayable in instalments of $10,000 a month on each monthly anniversary date of the agreement for months one to eight (eight instalments) and months ten through seventeen (eight instalments), and payments of $157,500 on month nine and month eighteen, for a total of $475,000.

The Company paid the first $10,000 instalment during June 2024.

Schedule of promissory note
	June 30, 2024		December 31, 2023

Promissory note	$	465,000	$	—
Disclosed as:
Current portion		267,500		—
Long-term portion		197,500		—
		465,000		—

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

13. Receivables funding

June 2, 2023 Funding

On June 2, 2023, the Company received funding from an agreement entered into through its 75% held subsidiary, Evernia Health Center, LLC entered into a Receivables Sale Agreement with Bizfund.com (“Bizfund”), whereby $198,000 of the Receivables of Evernia were sold to Bizfund, for gross proceeds of $150,000, made up of a cash payment to the Company of $75,750 and the transfer of $74,250 of the January 19, 2023, outstanding principal to the June 2, 2023 funding agreement. The Company is obliged to pay 15.0% of the receivables until the amount of $198,000 is paid in full, with periodic repayments of $4,950 per week. The guarantor of the funding is a minority shareholder in ATHI.

The Company made weekly cash payments of $4,950 totaling $198,000 by March 12, 2024, thereby extinguishing the debt.

September 15, 2023 Funding

On September 15, 2023, the Company, through its 75% held subsidiary, Evernia Health Center, LLC entered into a Receivables Sale Agreement with Itria Ventures LLC (“Itria”), whereby $320,000 of the Receivables of Evernia were sold to Itria, for gross proceeds of $250,000. The Company also incurred fees of $3,000, resulting in net proceeds of $247,500. The Company is obliged to pay $6,666.67 per week until the amount of $320,000 is paid in full. The guarantor of the funding is a minority shareholder in ATHI.

The Company made weekly cash payments of $6,667 totaling $273,333 by June 30, 2024. The balance outstanding at June 30, 2024 was $46,667, less unamortized discount of $10,131.

May 30, 2024 Funding

On May 30, 2024, the Company, through its subsidiary, Evernia Health Center, LLC entered into a Receivables Sale Agreement with Fortunate Sons (“Fortunate”), whereby $375,000 of the Receivables of Evernia were sold to Fortunate for gross proceeds of $300,000. The Company also incurred fees of $5,000, resulting in net proceeds of $295,000. The Company is obliged to pay $10,750 per week commencing 4 weeks after the agreement was entered into until the amount of $375,000 is paid in full.

The proceeds of the receivables funding was used to acquire the assets of Boca Cove Detox.

14. Government assistance loans

On May 3, 2021, ARIA was granted a government assistance loan in the aggregate principal amount of $157,367. The loan is forgivable if the Company demonstrates that the proceeds were used for expenses such as employee costs during the pandemic. Should the loan not be forgiven, interest is payable on the loan at the rate of 1% per annum and the principal is repayable and interest is payable over an 18-month period.

On September 21, 2022, ARIA received partial forgiveness of the government assistance loan of $104,368, the balance of the loan plus accrued interest is due and payable. On December 30, 2022, the Company sold ARIA to its Chairman and CEO and agreed to assume the repayment of the government assistance loan. As of June 30, 2024, the balance outstanding, including interest thereon was $27,982.

15. Related parties

Schedule of Related party payable
	June 30,		December 31,
	2024		2023
Related party receivables
Shawn E. Leon	$	13,571	$	—

Related party payables
Shawn E. Leon		—		61,267
Leon Developments Ltd.		1,092,701		1,092,701
Eileen Greene		1,545,377		1,418,324
Total related party payables	$	2,638,078	$	2,572,292

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

15. Related parties (continued)

Shawn E. Leon

At June 30, 2024, the Company had a receivable from Shawn Leon of $13,571 and at December 31, 2023, the Company had a payable to Shawn Leon of $61,267. Mr. Leon is a director and CEO of the Company. The balances receivable and payable are non-interest bearing and have no fixed repayment terms.

Mr. Leon forfeited management fees due to him for the six months ended June 30, 2024 and for the year ended December 31, 2023.

Leon Developments, Ltd.

Leon Developments is owned by Shawn Leon, the Company’s CEO and director. As of June 30, 2024 and December 31, 2023, the Company owed Leon Developments, Ltd., $1,092,701.

Eileen Greene

As of June 30, 2024 and December 31, 2023, the Company owed Eileen Greene, the spouse of our CEO, Shawn Leon, $1,545,377 and $1,418,324, respectively. The amount owed to Ms. Greene is non-interest bearing and has no fixed repayment terms.

Leonite Capital, LLC and Leonite Fund I, LLP

Leonite Capital is considered a related party due to its Series A Preferred stock interest in CCH, which was previously a wholly owned subsidiary of the Company, of $700,000, and its Series B Preferred stock interest in the Company of $400,000, as of December 31, 2022.

The Series A Preferred stock interest in CCH of $700,000 was recorded as a minority shareholder interest as of December 31, 2022.

Accrued dividends on the CCH Series A Preferred shares of $145,547 and accrued dividends on the Series B Preferred shares of $49,282 was owed to Leonite Capital as of December 31, 2022. Prior to the disposal of CCH to Leonite Capital on June 30, 2023, and the simultaneous cancellation of the Series B Preferred stock as discussed below, the accrued dividends on the CCH Series A Preferred shares was $184,545 and the accrued dividends on the Series B Preferred shares was $61,184.

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

Due to the related party nature of the transaction, the net result of the disposal of $1,334,885 and the $700,000 of the CCH Series A Preferred shares, totaling $2,034,885, was recorded as a credit to additional paid-in-capital.

In addition, due to the related party nature of the transaction, the cancellation of the Series B Preferred stock, of $400,000 and the dividends thereon of $61,184, totaling $461,184, was recorded as an extinguishment of debt reflected in additional paid-in-capital.

On August 4, 2023, the company repaid Leonite Capital $1,449,000 consisting of repayments of short-term convertible notes of $995,257, promissory notes of $420,069, additional penalty on settlement of $5,236 and a personal loan by Leonite to Shawn Leon of $28,438, which repayment reduced the related party payable to Shawn Leon, as disclosed above.

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

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

16. 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 3,729,053,805 shares of common stock at June 30, 2024 and December 31, 2023.

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 June 30, 2024 and December 31, 2023.

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 no issued and outstanding Series B Preferred shares at June 30, 2024 and December 31, 2023.

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 June 30, 2024 under the Plan.

Warrants

All of the warrants have cashless exercise terms whereby in-the-money warrants may be exercised by reducing the number of shares issued in terms of the warrant exercise to offset the proceeds due on the exercise.

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

Warrant exchange agreement

On June 28, 2023 the Company entered into a Warrant Exchange Agreement with Leonite that exchanged a Warrant outstanding to Leonite originally issued on June 12, 2020 for a new Warrant dated June 30, 2023. The substantial changes to the warrant affect the number of shares in the warrant, the exercise price and the term. The original warrant provided for Leonite to have a continuing right to purchase a 20% share of the outstanding common shares until it expired on June 12, 2025 which was originally set at 326,286,847 shares. The new warrant is exercisable for 745,810,761 shares, 20% of the current number of common shares outstanding, with no allowance for adjustment, except normal adjustments due to splits or consolidations, until the new expiry date of June 30, 2027. The exercise price in the original warrant was $0.10, with allowance for adjustments, which when applied resulted in an exercise price of $0.0004 per share. The exercise price on the new warrant is $0.001 and is only adjustable if the Company issues any shares at a price less than the exercise price during the warrant period except for any issuance of shares to the Company’s president or related parties on any debt outstanding to those parties as of June 30, 2023, and limited to a conversion price of $0.0005 per share.

The replacement warrants were valued effective June 30, 2023, the effective date of issuance of the warrants, as the difference between the fair value of the original warrant exercisable for 326,286,847 shares of common stock and the fair value of the replacement four-year warrant exercisable for 745,810,861 shares of common stock at an exercise price of $0.001 per share.

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

16. Stockholder’s deficit (continued)

A summary of the Company’s warrant activity during the period from January 1, 2023 to June 30, 2024 is as follows:

Schedule of warrant activity

No. of shares

Exercise price
per share

Weighted
average exercise
price

Outstanding as of January 1, 2023

602,852,506

$0.000675 to $0.00205

0.001306

Granted

745,810,761

$0.001

0.001

Forfeited/cancelled

(326,286,847

)

$0.000675

0.000675

Exercised

–

Outstanding as of December 31, 2023

1,022,376,420

$0.001 to $0.00205

0.0012840

Granted

–

Forfeited/cancelled

–

Exercised

–

Outstanding as of June 30, 2024

1,022,376,420

$0.001 to $0.00205

0.0012840

The following table summarizes information about warrants outstanding at June 30, 2024:

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

$0.001		745,810,761		3.00				745,810,761
$0.002050		276,565,659		1.52				276,565,659
		1,022,376,420		2.60	$	0.001284		1,022,376,420	$	0.001284

All of the warrants outstanding at June 30, 2024 are vested. The warrants outstanding at June 30, 2024 have an intrinsic value of $0.

17.

Segment information

The Company had two reportable operating segments, until the disposal of CCH on June 30, 2023, prior to that date the Company derived rental income from the property owned by its CCH subsidiary, subsequent to June 30, 2023, the Company only provides rehabilitation services to customers, these services are provided to customers at our Evernia, Addiction Recovery Institute of America.

The segment operating results of the reportable segments for the three months ended June 30, 2023 is disclosed as follows:

Schedule of segment operating
	Three months ended June 30, 2023
	Rental Operations			In-Patient services			Total

Revenue	$	93,368		$	1,472,591		$	1,565,959
Operating expenses		215,408			1,318,405			1,533,813

Operating (loss) income		(122,040	)		154,186			32,146

Other (expense) income
Forgiveness of intercompany loan		3,481,332			(3,481,332	)		—
Extension fee on property purchase		—			(130,000	)		(130,000	)
Penalty on convertible notes		—			(34,688	)		(34,688	)
Other income		—			339			339
Interest expense		(47,731	)		(96,250	)		(143,981	)
Amortization of debt discount		—			(87,526	)		(87,526	)
Foreign exchange movements		(28,290	)		(59,501	)		(87,791	)
Net income (loss) before taxes		3,283,271			(3,734,772	)		(451,501	)
Taxes		—			219,346			219,346
Net income (loss)	$	3,283,271		$	(3,515,426	)	$	(232,155	)

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

17.

Segment information (continued)

The segment operating results of the reportable segments for the six months ended June 30, 2023 is disclosed as follows:


	Six months ended June 30, 2023
	Rental Operations			In-Patient services			Total

Revenue	$	180,522		$	2,685,483		$	2,866,005
Operating expenses		245,528			2,513,305			2,758,833

Operating (loss) income		(65,006	)		172,178			107,172

Other (expense) income
Forgiveness of intercompany loan		3,481,332			(3,481,332	)		—
Extension fee on property purchase		—			(130,000	)		(130,000	)
Penalty on convertible notes		—			(34,688	)		(34,688	)
Other income		—			339			339
Interest expense		(95,464	)		(205,613	)		(301,077	)
Amortization of debt discount					(164,447	)		(164,447	)
Foreign exchange movements		(29,325	)		(61,421	)		(90,746	)
Net income (loss) before taxes		3,291,537			(3,904,984	)		(613,447	)
Taxes		—			205,575			205,575
Net income (loss)	$	3,291,537		$	(3,699,409	)	$	(407,872	)

The operating assets and liabilities of the reportable segments as of June 30, 2023 is as follows:

Schedule of operating assets and liabilities of the reportable segments
	June 30, 2023
	Rental Operations			In-Patient services			Total

Purchase of fixed assets	$	(43,611	)	$	65,253		$	21,642
Assets
Current assets		—			579,941			579,941
Non-current assets		—			3,255,653			3,255,653
Liabilities
Current liabilities		—			(9,856,833	)		(9,856,833	)
Non-current liabilities		—			(1,865,267	)		(1,865,267	)
Net liability position	$	—		$	(7,886,506	)	$	(7,886,506	)

18. Net loss per common share

For the three and six months ended June 30, 2024 and 2023, the following warrants exercisable for shares and convertible securities convertible into a number of shares were excluded from the computation of diluted net loss per share as the results would have been anti-dilutive.

Schedule of diluted net loss per share
	Three and six months ended June 30, 2024		Three and six months ended June 30, 2023

Shares issuable upon exercise of warrants		1,022,376,420		692,852,506
Shares issuable on conversion of convertible notes		174,044,742		582,290,570	`
		1,196,421,162		1,275,143,076

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

19. Commitments and contingencies

a. Options granted to purchase shares in ATHI

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

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

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

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.

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.

b. Other

The Company has principal and interest payment commitments under the Convertible notes disclosed under Note 10 above. Conversion of these notes are at the option of the investor, if not converted these notes may need to be repaid.

ETHEMA HEALTH CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

20.

Subsequent events

Edgewater Recovery Centers, LLC

On July 10, 2024 the Company finalized the execution of a letter of intent and a management agreement with respect to the assets and operations of Edgewater Recovery Center LLC of Morehead Kentucky. The purchase agreements will be for the shares and/or assets of Edgewater Recovery Centers, LLC (“ETC”), ERC Investments, LLC (“ERC”), JDE Properties, LLC (“JDE”), and New Journey LLC (“NJ”) as follows:

NJ:

The purchase price for NJ including cash, accounts receivable and real property at 721 White Street, Morehead, KY and not including any liabilities, not limited to, but including property taxes or income taxes, other than the mortgage loan against the property will be $1.00.

JDE:

The purchase price for JDE including cash, accounts receivable and real property at 164, 166 and 168 Maple Street, 1135 Rodburn Road, 214 Jackson Road, 70 Brandywine Lane and 1800 Rice Road, all in Morehead, KY and not including any liabilities, not limited to, but including property taxes and income taxes, other than mortgages and loans registered against the properties will be $1.00 plus an agreement to transfer the real property at 70 Brandywine Lane and 1800 Rice Road from JDE to the Seller, together with an assumption of mortgages against those properties.

ERC:

The purchase price for the ERC business including cash accounts receivable and real property at 1111 US 60 West and 425, 435 and 445 Clinic Drive, all in Morehead KY and not including any liabilities, not limited to, but including property taxes and income taxes, other than mortgage and loans against those properties, will be $2,600,000 paid by the issuance of a 6% interest Seller Note in the principal amount of $2,600,000 amortized over 25 years with a term of 7 years collateralized behind the existing mortgages on the ERC properties. Principal and interest payment on the $2,600,000 note of $16,752 will be paid monthly and will take effect upon the Closing Date. From and after the Effective Date and until the Closing Date, ETC will pay $13,000.00 (an amount equal to 6% interest on $2,600,000) per month to the Seller. The first payment of $13,000.00 will be made 30 days after the Effective Date.

ETC:

The purchase for the Business will include cash, accounts receivable and all assets of the business. The assumed liabilities will only be accounts payable for expenses of the Business from The Effective Date forward. All other liabilities other than debts to the Lenders, The Justice Department and the Seller will not be assumed. The purchase price for the Business will be $250,000.00 to be directed towards payment of legal fees and brokerage fees.

The Management Agreement will have an Effective Date of July 15, 2024.

Subscription for common shares by related parties

On July 12, 2024 the Company CEO and his spouse converted a total debt of $2 million into 4 billion shares of restricted common stock of the Company at the price of $0.0005 per share. The debt was non-interest bearing. A portion of the converted debt was due to Management fees that the CEO was entitled to under a management agreement for the Company subsidiary ARIA, bur deferred due to cash flow constraints.

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

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 condensed 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, 2023 filed with the Securities and Exchange Commission on May 7, 2024. 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 continue to grow the Evernia business organically or through acquisitions, should any opportunities present themselves.

Edgewater Recovery Centers, LLC

NJ:	The purchase price for NJ including cash, accounts receivable and real property at 721 White Street, Morehead, KY and not including any liabilities, not limited to, but including property taxes or income taxes, other than the mortgage loan against the property will be $1.00.

JDE:

ERC:

ETC:

Results of operations for the three months ended June 30, 2024 and 2023.

Revenues

Revenues were $1,490,100 and $1,565,959 for the three months ended June 30, 2024 and 2023, respectively, a decrease of $75,859 or 4.8%. The revenue from in-patient services related to Evernia was $1,490,100 and $1,472,593 for the three months ended June 30, 2024 and 2023, respectively, an increase of $17,507 or 1.2%. Revenue remained largely flat during the current period.

The revenue from rental properties was $0 and $93,368 for the three months ended June 30, 2024 and 2023, a decrease of $93,368 or 100.0%. The subsidiary owning the rental property, CCH was sold on June 30, 2023.

Operating Expenses

Operating expenses were $1,767,610 and $1,533,813 for the three months ended June 30, 2024 and 2023, respectively, an increase of $233,797 or 15.2%. The increase is primarily due to the following:

●

General and administrative expenses was $363,230 and $265,165 for the three months ended June 30, 2024 and 2023, respectively, an increase of $98,065 or 37.0%. The increase is primarily due to an increase in advertising and promotion expenses of $44,310 to increase awareness of the rehab facilities during the current period and an increase in property taxes of $59,221 based on accrued property taxes on the current property value. The remaining difference of $(5,466) is immaterial and is made up of several insignificant balances.

●

Rent expense was $274,130 and $105,933 for the three months ended June 30, 2024 and 2023, respectively, an increase of $168,197 or 158.8%. The increase is due to the acquisition of the Evernia property and the subsequent sale of property at an increased value with the simultaneous entry into a new 20-year lease agreement. The rental increased significantly by $110,520 over the period and the rental smoothing adjustment in terms of US GAAP over the life of the lease added an additional $57,677 to the current period charge.

●

Management fees were $0 and $215,503 for the three months ended June 30, 2024 and 2023, respectively, a decrease of $215,503 or 100.0%. The decrease is due to management fees paid to Leon developments from CCH in the prior year, prior to the disposal of CCH to a third party on June 30, 2023.

●

Professional fees were $301,132 and $177,910 for the three months ended June 30, 2024 and 2023, respectively, an increase of $123,222 or 69.3%. The increase is primarily due to an increase in corporate consulting fees of $55,737, legal fees of $23,052 and professional fees of $ 24,219, all related to the recent acquisition of the minority shareholders interest in ATHI and the acquisition of Boca Cove Detox assets and the assumption of the operating lease. Professional contractors used to operate the rehab center increased by $20,213 as the company increased its human resources to a full complement.

●

Salaries and wages were $717,032 and $629,707 for the three months ended June 30, 2024 and 2023, respectively, an increase of $87,325 or 13.9%. The increase is primarily due to the increase in headcount as the company increased its human resources to a full staffing complement for the rehab center.

●

Depreciation and amortization was $112,086 and $139,595 for the three months ended June 30, 2024 and 2023, respectively, a decrease of $27,509 or 19.7%. The decrease is due to the disposal of CCH, a property-owning subsidiary in the prior year.

Operating (loss) income

Operating (loss) was $277,510 and operating income was $32,146 for the three months ended June 30, 2024 and 2023, respectively, an increase of $309,656 or 963.3%. The increase is due to the increase in operating expenses of $233,797 and the loss of revenue from the rental properties of $93,368, offset by a slight increase in patient revenue of $17,507, as discussed in detail above.

Penalty on convertible note

The penalty on convertible notes was $0 and $34,688 for the three months ended June 30, 2024 and 2023, respectively, a decrease of $34,688 or 100%. The penalty on convertible note in the prior year was agreed upon with one of our lenders whose note was in default and was subsequently settled after June 30, 2023.

Extension fee on property purchase

The extension fee on the property purchase was $0 and $130,000 for the three months ended June 30, 2024 and 2023, respectively, a decrease of $130,000 or 100%. The extension fee in the previous year was levied by the landlord of our West Palm Beach facility to afford us additional time to structure the acquisition of the facility.

Interest expense

Interest expense was $106,914 and $143,981 for the three months ended June 30, 2024 and 2023, respectively, a decrease of $37,067 or 25.7%. The decrease is primarily due to monitoring fees incurred in the prior year on two short term notes and additional interest incurred on a senior secured promissory note advanced to the Company during the prior year. Several new notes were issued towards the end of the current period which will result in increased interest expense in future periods.

Amortization of debt discount

Amortization of debt discount was $75,240 and $87,526 for the three months ended June 30, 2024 and 2023, respectively, a decrease of $12,286 or 14.0%. The decrease is primarily due to a decrease in the level of receivables funding during the current period compared to the prior period. Additional receivables funding was advanced towards the end of the current quarter, which will result in increased amortization expense over future periods.

Foreign exchange movements

Foreign exchange movements were $(6,134) and $(87,791) for the three months ended June 30, 2024 and 2023, respectively, representing the realized exchange gains and (losses) on monetary assets and liabilities settled during the current year as well as mark to market adjustments on monetary assets and liabilities reflected on the balance sheet and denominated in Canadian Dollars. The Dollar was relatively stable against the Canadian dollar over the prior quarter and the prior period included the realization of an unrealized translation adjustments of $51,708 on the disposal of our property owning subsidiary Cranberry Cove Holdings.

Net loss before income taxes

Net loss before income taxes was $(465,275) and $(451,501) for the three months ended June 30, 2024 and 2023, respectively, an increase of $13,774 or 3.1%. The increase is primarily due to the increase in operating loss discussed above offset by decreases in penalty on convertible notes, the extension fee on property purchase, the decrease in interest expense and the decrease in amortization of debt discount and foreign exchange movements, all discussed in detail above.

Income Taxes

Income taxes was $0 and income taxes credit was $219,346 for the three months ended June 30, 2024 and 2023, a decrease of $219,346 or 100.0%. The decrease is due to the completion of tax returns in the prior year for our operating subsidiaries during the prior year quarter, which resulted in the reversal of previously provided for income taxes, primarily related to accelerated depreciation allowances on property and equipment.

Net loss

Net loss was $(465,275) and $(232,155) for the three months ended June 30, 2024 and 2023, respectively, an increase of $233,120 or 100.4%, primarily due to the increase in net loss before taxation offset by the taxation credit, as discussed above.

For the six months ended June 30, 2024 and June 30, 2023.

Revenues

Revenues were $2,790,200 and $2,866,005 for the six months ended June 30, 2024 and 2023, respectively, a decrease of $75,805 or 2.6%. The revenue from in-patient services related to Evernia was $2,790,200 and $2,685,483 for the six months ended June 30, 2024 and 2023, respectively, an increase of $104,717 or 3.9%, which is in line with our expectations.

The revenue from rental properties was $0 and $180,522 for the six months ended June 30, 2024 and 2023, a decrease of $180,522 or 100.0%. The subsidiary owning the rental property, CCH was sold on June 30, 2023.

Operating Expenses

Operating expenses were $3,296,785 and $2,758,833 for the six months ended June 30, 2024 and 2023, respectively, an increase of $537,952 or 19.5%. The increase is primarily due to the following:

●

General and administrative expenses was $637,775 and $506,402 for the six months ended June 30, 204 and 2023, respectively, an increase of $131,373 or 25.9%. The increase is primarily due to an increase in advertising and promotion expenses of $55,642 to increase awareness of the rehab facilities during the current period and an increase in property taxes of $56,568 based on accrued property taxes on the current property value, and an increase in travel costs of $19,644 due to the amount of corporate activity and travel related to potential acquisitions during the current year. The remaining difference of $481 is immaterial and is made up of several insignificant balances.

●

Rent expense was $539,263 and $220,497 for the six months ended June 30, 2024 and 2023, respectively, an increase of $318,766 or 144.6%. The increase is primarily due to the acquisition of the Evernia property and the subsequent sale of property at an increased value with the simultaneous entry into a new 20-year lease agreement. The rental increased significantly by $203,412 over the period and the rental smoothing adjustment in terms of US GAAP over the life of the lease added an additional $115,354 to the current period charge.

●

Management fees were $0 and $243,003 for the six months ended June 30, 2024 and 2023, respectively, a decrease of $243,003 or 100.0%. The decrease was due to management fees paid to Leon developments from CCH prior to the disposal of CCH to a third party on June 30, 2023 and management fees paid to the previous minority shareholder in the prior year.

●

Professional fees were $455,682 and $289,114 for the six months ended June 30, 2024 and 2023, respectively, an increase of $166,568 or 57.6%. The increase is primarily due to an increase in corporate consulting fees of $55,737, legal fees of $23,212 and professional fees of $75,359, all related to the recent acquisition of the minority shareholders interest in ATHI and the acquisition of Boca Cove Detox assets and the assumption of the operating lease. Professional contractors used to operate the rehab center increased by $12,259 as the company increased its human resources to a full complement.

●

Salaries and wages were $1,440,773 and $1,221,741 for the six months ended June 30, 2024 and 2023, respectively, an increase of $219,032 or 17.9%. The increase is primarily due to the increase in headcount as the company increased its human resources to a full staffing complement for the rehab center.

●

Depreciation and amortization was $223,292 and $278,074 for the six months ended June 30, 2024 and 2023, respectively, a decrease of $54,782 or 19.7%. The decrease is due to the disposal of CCH, a property-owning subsidiary in the prior year.

Operating (loss) income

The operating loss was $(506,585) and the operating income was $107,172 for the six months ended June 30, 2024 and 2023, respectively, an increase of $613,757 or 572.7%. The increase is due to the increase in operating expenses of $53,952 and a decrease in revenue of $75,805, discussed in detail above.

Penalty on convertible note

The penalty on convertible notes was $0 and $34,688 for the six months ended June 30, 2024 and 2023, respectively, a decrease of $34,688 or 100%. The penalty on convertible note in the prior year was agreed upon with one of our lenders whose note was in default and was subsequently settled after June 30, 2023.

Extension fee on property purchase

The extension fee on the property purchase was $0 and $130,000 for the six months ended June 30, 2024 and 2023, respectively, a decrease of $130,000 or 100%. The extension fee in the previous year was levied by the landlord of our West Palm Beach facility to afford us additional time to structure the acquisition of the facility.

Interest expense

Interest expense was $200,100 and $301,077 for the six months ended June 30, 2024 and 2023, respectively, a decrease of $100,977 or 33.5%. The decrease is primarily due to monitoring fees incurred in the prior year on two short term notes and additional interest incurred on a senior secured promissory note advanced to the Company during the prior year. Several new notes were issued towards the end of the current period which will result in increased interest expense in future periods.

Amortization of debt discount

Amortization of debt discount was $138,402 and $164,447 for the six months ended June 30, 2024 and 2023, respectively, a decrease of $26,045 or 15.8%. The decrease is primarily due to a decrease in the level of receivables funding during the current period compared to the prior period. Additional receivables funding was advanced towards the end of the current quarter, which will result in increased amortization expense over future periods.

Foreign exchange movements

Foreign exchange movements were $4,511 and $90,746 for the six months ended June 30, 2024 and 2023, respectively, representing the realized exchange gains and (losses) on monetary assets and liabilities settled during the current year as well as mark to market adjustments on monetary assets and liabilities reflected on the balance sheet and denominated in Canadian Dollars. The Dollar was substantially stable against the Canadian Dollar during the current period and unrealized translation adjustments of $51,708 was realized on the disposal of our property owning subsidiary Cranberry Cove Holdings. In the prior year.

Net loss before income taxes

Net loss before income taxes was $(839,478) and $(613,447) for the six months ended June 30, 2024 and 2023, respectively, an increase of $226,031 or 36.8%. The increase is primarily due to, the increase in the operating loss, offset by decreases in penalty on convertible notes, the extension fee on property purchase, the decrease in interest expense and the decrease in amortization of debt discount and foreign exchange movements, all discussed in detail above.

Income taxes

Income taxes was $0 for the six months ended June 30, 2024 and a tax credit of $205,575 for the six months ended June 30, 2023, a decrease of $205,575 or 100.0%. The decrease is due to the completion of tax returns for our operating subsidiaries during the prior period, which resulted in the reversal of previously provided for income taxes, primarily related to accelerated depreciation allowances on property and equipment.

Net loss

Net loss was $(839,478) and $(407,872) for the six months ended June 30, 2024 and 2023, respectively, an increase of $431,606 or 105.8%. The increase is primarily due to the increase in net loss before taxation offset by the prior period taxation credit, 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 June 30, 2024 is as follows:

	Amount
Remainder of 2024	$	4,915
2025		9,829
2026		6,195
2027		1,707
		22,646
Imputed interest		(1,915	)
Total finance lease liability	$	20,731

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

	Amount

Remainder of 2024	$	511,915
2025		1,045,192
2026		1,074,288
2027		961,526
2028		841,379
2029 and thereafter		15,358,663
Total undiscounted minimum future lease payments		19,792,963
Imputed interest		(9,526,750	)
Total operating lease liability	$	10,266,213

The company also has commitments under convertible notes, short-term notes, promissory note and receivables funding. If the convertible loans, as disclosed in note 10, above are not converted they will need to be repaid.

Liquidity and Capital Resources

We have prepared our unaudited condensed consolidated financial statements in accordance with US GAAP applicable to a going concern, which assumes that we will be able to meet our obligations and continue our operations in the normal course of business. At June 30, 2024 we had a working capital deficiency of $8.2 million, and total liabilities in excess of assets in the amount of $8.1 million. We believe that current available resources will not be sufficient to fund our planned expenditures over the next 12 months. These factors, individually and collectively indicate that a material uncertainty exists that raises substantial doubt about our ability to continue as a going concern for one year from the date of issuance of these condensed interim consolidated financial statements.

We are dependent on the raising additional capital through placement of common shares, and/or debt financing in order to implement our business plan and generating sufficient revenue in excess of costs. If we raise additional capital through the issuance of equity securities or securities convertible into equity, stockholders will experience dilution, and such securities may have rights, preferences or privileges senior to those of the holders of common stock or convertible senior notes. If we raise additional funds by issuing debt, we may be subject to limitations on its operations, through debt covenants or other restrictions. If we obtain additional funds through arrangements with collaborators or strategic partners, we may be required to relinquish our rights to certain geographical areas, or techniques that we might otherwise seek to retain. There is no assurance that we will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on our financial condition. These unaudited condensed consolidated financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should we be unable to continue as a going concern.

Cash used in operating activities was $(269,920) and cash generated from operating activities was $35,488 for the six months ended June 30, 2024 and 2023, respectively, an increase of $305,408. The increase is primarily due to the following:

●

An increase in net loss of $431,606, discussed under operations above.

●

An increase in the movement of non-cash items of $211,592 primarily due to the movement in the amortization of right of use assets of $127,140 and the movement in depreciation of $54,782, and the movement in penalty on convertible notes of $34,688.

●

The movement in working capital decreased by $337,791, primarily due to the decrease in the movements in accounts receivable of $250,566, accounts payable of $240,271 and taxes payable of $237,211, offset by the increase in the movement in accounts payable and accrued liabilities of $(411,551).

Cash used in investing activities was $1,007,273 and $21,642 for the six months ended June 30, 2024 and 2023, respectively.

During the current period, we paid $625,000 for the acquisition of the minority interest in ATHI, a further $240,000 for the acquisition of the assets of Boca Cove Detox and a further $83,393 for the assumption of the real property deposit on the Boca Cove facility. Property and equipment purchased during the current period was $58,880 and in the prior period was $21,642. The purchase of property and equipment in both periods related to the expansion of the in-patient treatment facility.

Cash provided by (used in) financing activities was $1,254,820 and $(210,255) for the six months ended June 30, 2024 and 2023, respectively. In the current period the Company received $1,732,000 and repaid $(570,000) of short-term notes and received $295,000 and repaid $232,733 from receivables funding, in addition $52,215 was received from related parties. In the prior year we received $78,246 from related parties, we also received $264,750 and repaid $448,905 of receivables funding, we also made mortgage repayments of $58,320 on the CCH property which has subsequently been sold together with the mortgage liability.

Over the next twelve months we estimate that the company will require approximately $3.5 million for working capital and to repay existing short-term notes as the business continues to develop its rehab business in the US market. The Company has convertible notes, short term loans and promissory notes which will mature or have already matured during the current year and 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 high due to this uncertainty.

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.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Pursuant to Rule 13a-15(b) under the Exchange Act, our management carried out an evaluation, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Report. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures as of June 30, 2024 are not effective due to a lack of written policies and procedures to address all material transactions and developments impacting our financial statements.

Changes in Internal Control over Financial Reporting

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 June 30, 2024. Our management is committed to improving our controls and procedures by, among other matters, continuing to consider and adopt appropriate policies and procedures to address all material transactions and developments impacting our financial statements. However, our management does not expect that our disclosure controls and procedures and our internal control processes, even if improved, will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of error or fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that the breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

PART II

Item 1. Legal Proceedings.

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.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item.

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

Unregistered sales of equity securities

None.

Use of proceeds from public offerings of common stock

None.

Item 3. Defaults upon senior securities

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

Not applicable.

Item 6. Exhibits

Exhibit No.	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)

* filed herewith

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: August 19, 2024

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	Date

/s/Shawn E. Leon	Chief Executive Officer (Principal Executive Officer),	August 19, 2024
Shawn Leon	Chief Financial Officer (Principal Financial Officer), President and Director

/s/ Gerald T. Miller	Director	August 19, 2024
Gerald Miller

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Ethema Health (GRST) 10-Q2024 Q2 Quarterly report

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