ETHEMA HEALTH Corp 10-Q for FY2025 Q3
ETHEMA HEALTH Corp (GRST)
About this 10-Q
ETHEMA HEALTH Corp filed this 10-Q on December 3, 2025, covering the quarter ended September 30, 2025 (FY2025 Q3).
Headline figures
Quarter ended September 30, 2025, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $5.53M
- up 214.2% from $1.76M a year earlier
- Net income
- $66.14K
- compared with a net loss of $1M a year earlier
- Diluted EPS
- $0.00
- compared with $0.00 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
or
For the transition period from to
Commission
File Number
(Exact Name of Registrant as Specified in its Charter)
| (State or other jurisdiction
of incorporation or organization) |
(I.R.S. employer Identification No.) | |
| Address of Principal Executive Offices | Zip Code |
(
Registrant’s Telephone Number, Including Area Code
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | |||
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.
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).
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 ☐ |
| 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 Exchange Act). Yes ☐ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Number of shares of common stock outstanding as of December 2, 2025 was .
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
| 1 |
ETHEMA HEALTH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2025 | December 31, 2024 | |||||||
| ASSETS | (unaudited) | |||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Non-current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Right of use assets | ||||||||
| Right of use assets – related party | ||||||||
| Deposits paid | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Bank loans | ||||||||
| Assumed liability | ||||||||
| Convertible notes, net of discounts | ||||||||
| Short-term notes, net | ||||||||
| Promissory note | ||||||||
| Funding arrangements, net | ||||||||
| Related party advance, net | ||||||||
| Government assistance loans | ||||||||
| Operating lease liability | ||||||||
| Operating lease liability -related party | ||||||||
| Finance lease liability | ||||||||
| Related party payables | ||||||||
| Stock subscription liability | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities | ||||||||
| Bank loans | ||||||||
| Assumed liability | ||||||||
| Note payable – related party | ||||||||
| Government assistance loans | ||||||||
| Operating lease liability | ||||||||
| Operating lease liability – related party | ||||||||
| Finance lease liability | ||||||||
| Deferred taxation | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders’ deficit | ||||||||
| Preferred stock - Series A; $ par value, authorized, shares issued and outstanding as of September 30, 2025 and December 31, 2024, respectively. | ||||||||
| Common stock - $ par value, shares authorized; and shares issued and outstanding as of September 30, 2025 and December 31, 2024, respectively. | ||||||||
| Additional paid-in capital | ||||||||
| Discount for shares issued below par value | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 2 |
ETHEMA HEALTH CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| Three months ended September 30, 2025 | Three months ended September 30, 2024 | Nine months ended September 30, 2025 | Nine months ended September 30, 2024 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Operating expenses | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Salaries and wages | ||||||||||||||||
| Rent expense | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Management fees | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ||||||||||||
| Other Income (expense) | ||||||||||||||||
| Other income | ||||||||||||||||
| Other expense | ( | ) | ( | ) | ||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amortization of debt discount | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Foreign exchange movements | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income (loss) before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Income taxes | ||||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss attributable to non-controlling interest | ||||||||||||||||
| Net income (loss) available to common shareholders of Ethema Health Corporation | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Loss per share | ||||||||||||||||
| - Basic | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| - Diluted | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average common shares outstanding | ||||||||||||||||
| - Basic | ||||||||||||||||
| - Diluted | ||||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 3 |
ETHEMA HEALTH CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
| Series A Preferred | Common | Additional paid-in | Discount to | Accumulated | |||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | par value | Deficit | Total | ||||||||||||||||||||||||||
| Balance as of December 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( |
) | $ | ( | ) | |||||||||||||||||||||
| Common shares cancelled | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net loss | — | — | ( |
) | ( | ) | |||||||||||||||||||||||||||
| Balance as of March 31, 2025 | $ | $ | $ | $ | ( | ) | $ | ( |
) | $ | ( | ) | |||||||||||||||||||||
| Net loss | — | — | ( |
) | ( | ) | |||||||||||||||||||||||||||
| Balance as of June 30, 2025 | $ | $ | $ | $ | ( | ) | $ | ( |
) | $ | ( | ) | |||||||||||||||||||||
| Net income | — | — | |||||||||||||||||||||||||||||||
| Balance as of September 30, 2025 | $ | $ | $ | $ | ( | ) | $ | ( |
) | $ | ( | ) | |||||||||||||||||||||
| 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 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||||
| Acquisition of minority shareholders interest | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance as of June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||||
| Conversion of related party payables to equity | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 4 |
ETHEMA HEALTH CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Nine months ended September 30, 2025 | Nine months ended September 30, 2024 | |||||||
| Operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustment to reconcile consolidated net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization expense | ||||||||
| Amortization of debt discount | ||||||||
| Provision for credit losses | ||||||||
| Amortization of right of use asset | ||||||||
| Deferred taxation | ( | ) | ||||||
| Non-cash management fee | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Other current assets | ||||||||
| Accounts payable and accrued liabilities | ||||||||
| Related party accruals | ||||||||
| Operating lease liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing activities | ||||||||
| Acquisition of Aria Kentucky, net of cash of $299,492 | ||||||||
| Acquisition of assets | ( | ) | ||||||
| Acquisition of non-controlling interest | ( | ) | ||||||
| Deposits paid | ( | ) | ( | ) | ||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities | ||||||||
| Repayment of assumed liability | ( | ) | ||||||
| Proceeds from bank loans | ||||||||
| Repayment of bank loans | ( | ) | ||||||
| Proceeds from funding arrangements | ||||||||
| Repayment of funding arrangements | ( | ) | ( | ) | ||||
| Repayment of promissory notes | ( | ) | ( | ) | ||||
| Proceeds from short-term notes | ||||||||
| Repayment of short term notes | ( | ) | ( | ) | ||||
| Repayment of government assistance loans | ( | ) | ||||||
| Repayment of finance leases | ( | ) | ( | ) | ||||
| Proceeds from related party advances | ||||||||
| Repayment of related party advances | ( | ) | ( | ) | ||||
| Repayment to related parties | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate on cash | ( | ) | ||||||
| Net change in cash | ( | ) | ( | ) | ||||
| Beginning cash balance | ||||||||
| Ending cash balance | $ | $ | ||||||
| Supplemental cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Non- cash investing and financing activities | ||||||||
| Present value of operating lease liability and operating lease right of use assets recognized in connection with lease commencement | $ | $ | ||||||
| Present value of operating lease liability and operating lease right of use assets recognized in connection with lease commencement- Related party | $ | $ | ||||||
| Common shares cancelled | $ | $ | ||||||
| Bank loan proceeds applied directly to settle seller’s debt in connection with acquisition | $ | $ | ||||||
| Related party loan proceeds applied directly to seller’s debt in connection with acquisition | $ | $ | ||||||
| Promissory note issued on acquisition of minority shareholders interest | $ | $ | ||||||
| Conversion of related party payable to common stock | $ | $ | ||||||
| Conversion of related party payable to preferred stock | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 5 |
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 through owned properties in Delray Beach and subsequently through 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.
Acquisition of minority stockholders 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 stockholder 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.
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.
Acquisition of Edgewater Recovery Centers, LLC
On October 22, 2024, ARIA Kentucky LLC (ARIA Kentucky”), a wholly owned subsidiary of the Company, Edgewater Recovery Centers, LLC (“ERC”) and John Elam (the ”Seller”), entered into an Asset Purchase Agreement (”APA”) pursuant to which ARIA Kentucky agreed to acquire and ERC agreed to sell to ARIA Kentucky on the closing date (the “Acquisition”) , the addiction treatment operations owned by ERC and located in Morehead and Paducah, Kentucky through a purchase of the assets of ERC (the “Acquired Assets”), including; all assets of ERC used in the business of ERC (except for certain specified assets), including but not limited to all current assets existing at the time of closing, all cash balances and rights to receive cash, all equipment, machinery, all warranties related to the business and acquired assets, all intangible personal property, intellectual property, all business inventories, all property leases associated with the business, all assumed contracts, all governmental authorizations; and all information and records, including patient records, as defined in the APA. Certain of the real property associated with the operations of ERC (the “Real Property”) is fully leveraged and requires credit and personal guarantees which the Company is unable to provide. The entities owning the real property were acquired in a separate transaction by BH Properties Fund LLC (“BH Properties”), a company controlled by Mr. Shawn Leon, the Company’s CEO and therefore a related party. BH Properties through its acquired subsidiaries then entered into lease agreements with ARIA Kentucky on an arms-length basis, at market related rates.
On January 9, 2025, ARIA Kentucky consummated the Acquisition of the Acquired Assets of ERC. Pursuant to the terms of the APA, at closing ARIA Kentucky paid the Seller $250,000 and assumed certain liabilities related to the Acquired Assets, including trade payables and liabilities under assumed contracts and certain specifically identified liabilities, including a settlement agreement with the United States government and the State of Kentucky and certain obligations as a borrower or guarantor related to banking obligations.
On January 9, 2025, in a separate transaction, BH Properties acquired ERC Investments, LLC (”ERCI”), New Journey LLC (“NJ”) and JDE Properties, LLC (“JDE”) which separately own certain Real Property on which ARIA Kentucky operates and which was subsequently leased to ARIA Kentucky.
| 6 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 2. | Summary of significant accounting policies |
Financial Reporting
The (a) unaudited condensed consolidated balance sheets as of September 30, 2025, and as of December 31, 2024, 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 nine months ended September 30, 2025 are not necessarily indicative of results that may be expected for the year ending December 31, 2025. 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, 2024, filed with the Securities and Exchange Commission (“SEC”) on May 23, 2025.
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 U.S. GAAP requires management to make estimates and assumptions, which are evaluated on an ongoing basis, that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the amounts of revenues and expenses that are not readily apparent from other sources. Actual results could differ from those estimates and judgments. In particular, significant estimates and judgments include those related to, the estimated useful lives of long lived assets, the fair value of long-lived assets and goodwill, including impairment analysis, business combinations, estimates in revenue recognition, allowance for credit losses, estimates in the fair value of warrants and stock options granted for services or compensation, estimates in convertible debt, borrowing rate consideration for right-of-use (ROU) lease assets including related lease liability, and the valuation allowance for deferred tax assets due to continuing operating losses.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the unaudited condensed consolidated financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from our estimates.
| b) | Principals of consolidation and foreign currency 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.
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.
| c) | Business combinations |
The Company allocates the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed for business combinations with third parties based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.
Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
| 7 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 2. | Summary of significant accounting policies (continued) |
| d) | Cash and cash equivalents |
For purposes of the statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. The Company maintains cash and cash equivalents with several financial institution in the USA and Canada. There were no cash equivalents at September 30, 2025 and December 31, 2024.
The
Company primarily places cash balances in the United States 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 $
| e) | Accounts receivable |
Accounts receivable primarily consists of amounts due from third-party payors (non-governmental) and private pay patients and is recorded net of allowances for doubtful accounts and contractual discounts. The Company’s ability to collect outstanding receivables is critical to its results of operations and cash flows. Accordingly, accounts receivable reported in the Company’s 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.
| f) | Allowance for doubtful accounts |
The Company derives the majority of its revenues from commercial payors at in-network rates. 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 taking into account expected credit losses in the revenue recognition process. The revenue we recognize is already net of expected credit losses, therefore management does not maintain a separate allowance for doubtful accounts, contractual and other discounts.
Management also takes into consideration the age of accounts, creditworthiness and current economic trends when evaluating the percentage of revenue to be recognized.
| g) | 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 operating 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 operating lease liability raised at the date of lease inception. The right of use asset and the operating lease liability are amortized over the right of use period using the effective interest rate implied in the operating lease agreement.
| 8 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 2. | Summary of significant accounting policies (continued) |
| h) | 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.
| i) | 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.
| j) | 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.
Customer relationships and non-compete agreements identified on the acquisition of the assets of Edgewater Recovery Center, LLC, as discussed in note 4 below, are amortized over their expected useful lives of fifteen years and five years, respectively.
| k) | Goodwill |
The Company allocates the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.
Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
The Company annually assesses whether the carrying value of its reporting unit exceeds its fair value and, if necessary, records an impairment loss equal to any such excess. Each interim reporting period, the Company assesses whether events or circumstances have occurred which indicate that the carrying amount of the reporting unit exceeds its fair value. If the carrying amount of the reporting unit exceeds its fair value, an asset impairment charge will be recognized in an amount equal to that excess.
Goodwill was recently acquired and is assessed annually on December 31, 2025 to see if there are any qualitative or quantitative indications that impairment of goodwill may be appropriate. At each quarter end a qualitative analysis is performed, to determine if any impairment should be considered. As of September 30, 2025, there were no indications that an impairment of goodwill may be required.
| l) | Derivatives |
The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. The Company previously used a Black Scholes Option Pricing model to estimate the fair value of convertible debt conversion features at the end of each applicable reporting period. Changes in the fair value of these derivatives during each reporting period were included in the statements of operations. Inputs into the Black Scholes Option Pricing model require estimates, including such items as estimated volatility of the Company’s stock, risk free interest rate and the estimated life of the financial instruments being fair valued.
If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion feature.
| 9 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 2. | Summary of significant accounting policies (continued) |
| m) | Financial instruments |
The Company initially measures its financial assets and liabilities at fair value, except for certain non-arm’s length transactions. The Company subsequently measures all its financial assets and financial liabilities at amortized cost.
Financial assets measured at amortized cost include cash and accounts receivable.
Financial liabilities measured at amortized cost include bank indebtedness, accounts payable and accrued liabilities, related party payables, taxes payable, convertible notes payable, promissory notes, funding arrangements, 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 the statement of operations. 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 the statement of operations. The Company recognizes its transaction costs in the statement of operations 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 any 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.
| n) | 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.
| o) | 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 unaudited condensed consolidated statements of operations.
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.
| 10 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 2. | Summary of significant accounting policies (continued) |
| o) | Revenue recognition (continued) |
The Company derives a significant portion of its revenue from payors that receive discounts from established billing rates. The various managed care contracts under which these discounts must be calculated are complex, subject to interpretation and adjustment, and may include multiple reimbursement mechanisms for different types of services provided in the Company’s inpatient facilities and cost settlement provisions. Management estimates the transaction price on a payor-specific basis given its interpretation of the applicable regulations or contract terms. The services authorized and provided and related reimbursement are often subject to interpretation that could result in payments that differ from the Company’s estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular review and assessment of the estimation process by management.
Settlements
with third-party payors are estimated and recorded in the period in which the related services are rendered and are adjusted in future
periods as final settlements are determined. In the opinion of management, adequate provision has been made for any adjustments and final
settlements. 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 $
The Company’s revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those services. The Company derives its revenues from the sale of its services. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its revenue transactions:
| i. | identify the contract with a customer; | |
| ii. | identify the performance obligations in the contract; | |
| iii. | determine the transaction price; | |
| iv. | allocate the transaction price to performance obligations in the contract; and | |
| v. | recognize revenue as the performance obligation is satisfied. |
| p) | 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 unaudited condensed 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 2020, through 2024 are subject to audit or review by the US tax authorities, whereas fiscal 2011 through 2024 are subject to audit or review by the Canadian tax authority.
| 11 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 2. | Summary of significant accounting policies (continued) |
| q) | Net income (loss) per Share |
Basic net income (loss) per share is computed on the basis of the weighted average number of common stock outstanding during the year.
Diluted net loss per share is computed on the basis of the weighted average number of common stock and common stock equivalents outstanding. Dilutive securities having an anti-dilutive effect on diluted net income (loss) per share are excluded from the calculation.
Dilution is computed by applying the treasury stock method for options and warrants. Under this method, “in-the money” options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Dilution is computed by applying the if-converted method for convertible preferred stocks. Under this method, convertible preferred stock is assumed to be converted at the beginning of the period (or at the time of issuance, if later), and preferred dividends (if any) will be added back to determine income applicable to common stock. The shares issuable upon conversion will be added to weighted average number of common stock outstanding. Conversion will be assumed only if it reduces earnings per share (or increases loss per share).
| r) | Stock based compensation |
Stock based compensation cost is measured at the grant date, based on the estimated fair value of the award and is recognized as expense over the employee’s requisite service period or vesting period on a straight-line basis. Share-based compensation expense recognized in the unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2025 and 2024 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.
| s) | Financial instruments Risks |
The Company is exposed to various risks through its financial instruments. The following analysis provides a measure of the Company’s risk exposure and concentrations at the balance sheet date, September 30, 2025 and December 31, 2024.
| i. | 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 U.S.
| 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 $
| 12 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 2. | Summary of significant accounting policies (continued) |
| s) | Financial instruments Risks (continued) |
| iii. | Market risk |
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises of three types of risk: interest rate risk, currency risk, and other price risk. The Company is exposed to interest rate risk and currency risk.
| a. | 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 bank loans, assumed debt, convertible debt, promissory notes, short term loans, funding arrangements, third party loans and government assistance loans as of September 30, 2025.
| b. | 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 limited exposure to assets and liabilities denominated in foreign currencies. The Company has not entered into any hedging agreements to mitigate this risk.
| c. | 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.
| d. | Concentration of customers |
During the three and nine months ended September 30, 2025 and 2024, the Company derived approximately 100% of its revenues from a group of commercial healthcare insurers. Any adverse change in policy towards the treatment of substance abuse patients adopted by a majority of the group of commercial healthcare insurers will have a significant impact on the Company.
| t) | Recent accounting pronouncements |
The Financial Accounting Standards Board (“FASB”) issued additional updates during the nine months ended September 30, 2025. 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 unaudited condensed consolidated financial statements upon adoption.
| u) | Comprehensive income (loss) |
Comprehensive income (loss) is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investments from owners and distributions to owners. The Company does not have any comprehensive income (loss) for the periods presented.
| v) | Segment information |
The Company’s Chief Executive Officer and President (“CEO”) is our chief operating decision maker (“CODM”) and evaluates performance and makes operating decisions about allocating resources based on financial data presented on a consolidated basis. Because our CODM evaluates financial performance on a consolidated basis, the Company has determined that it operates as a single reportable segment composed of the financial results of Ethema Health Corporation.
| 13 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 3. | Going concern |
The
accompanying unaudited condensed consolidated financial statements have been prepared on a going-concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course of business. As
of September 30, 2025, the Company had an accumulated deficit of $
Management believes that current available resources will not be sufficient to fund the Company’s planned expenditures over the next 12 months. Accordingly, the Company will be dependent upon the raising of additional capital through placement of common shares, and/or debt financing in order to implement its business plan and generating sufficient revenue in excess of costs. If the Company raises additional capital through the issuance of equity securities or securities convertible into equity, stockholders will experience dilution, and such securities may have rights, preferences or privileges senior to those of the holders of common stock or convertible senior notes. If the Company raises additional funds by issuing debt, the Company may be subject to limitations on its operations, through debt covenants or other restrictions. If the Company obtains additional funds through arrangements with collaborators or strategic partners, the Company may be required to relinquish its rights to certain geographical areas, or techniques that it might otherwise seek to retain. There is no assurance that the Company will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on the Company’s financial condition.
Based on the uncertainties described above, the Company believes its business plan does not alleviate the existence of substantial doubt about its ability to continue as a going concern within one year from the date of the issuance of these unaudited condensed consolidated financial statements. The accompanying 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 the business of Edgewater Recovery Center |
On October 22, 2024, ARIA Kentucky LLC (ARIA Kentucky”), a wholly owned subsidiary of the Company, Edgewater Recovery Centers, LLC (“ERC”) and John Elam (the ”Seller”), entered into an Asset Purchase Agreement (”APA”) pursuant to which ARIA Kentucky agreed to acquire and ERC agreed to sell to ARIA Kentucky on the closing date (the “Acquisition”), the addiction treatment operations owned by ERC and located in Morehead and Paducah, Kentucky through a purchase of the assets of ERC (the “Acquired Assets”), including; all assets of ERC used in the business of ERC (except for certain specified assets), including but not limited to all current assets existing at the time of closing, all cash balances and rights to receive cash, all equipment, machinery, all warranties related to the business and acquired assets, all intangible personal property, intellectual property, all business inventories, all property leases associated with the business, all assumed contracts, all governmental authorizations; and all information and records, including patient records, as defined in the APA. Certain of the real property associated with the operations of ERC (the “Real Property”) is fully leveraged and requires credit and personal guarantees which the Company is unable to provide. The entities owning the real property were acquired in a separate transaction by BH Properties Fund LLC (“BH Properties”), a company controlled by Mr. Shawn Leon, the Company’s CEO and therefore a related party. BH Properties through its acquired subsidiaries then entered into lease agreements with ARIA Kentucky on an arms-length basis, at market related rates.
On
January 9, 2025, ARIA Kentucky consummated the Acquisition of the Acquired Assets of ERC. Pursuant to the terms of the APA, at closing
ARIA Kentucky paid the Seller $
| 14 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 4. | Acquisition of the business of Edgewater Recovery Center (continued) |
The provisional allocation of assets acquired and liabilities assumed is as follows:
| Schedule of allocation of assets acquired and liabilities | ||||
| Amount | ||||
| Purchase price | ||||
| Cash | $ | |||
| Allocation of purchase price | ||||
| Current assets | ||||
| Cash | $ | |||
| Accounts receivable | ||||
| Other current assets | ||||
| Total current assets | ||||
| Non-current assets | ||||
| Property and equipment | ||||
| Customer relationships | ||||
| Non-compete agreements | ||||
| Goodwill | ||||
| Deposits | ||||
| Total Non-current assets | ||||
| Total Assets acquired | $ | |||
| Current liabilities | ||||
| Accrued liabilities | $ | |||
| Related party payables | ||||
| Total current liabilities | ||||
| Non-current liabilities | ||||
| Bank loans | ||||
| Note payable – related party | ||||
| Assumed liability | ||||
| Deferred taxation | ||||
| Total Non-current liabilities | ||||
| Total liabilities assumed | $ | |||
| Net assets acquired | $ | |||
The amount of pro forma revenue and earnings which would have been included in the Company’s unaudited condensed consolidated statement of operations for the period ended September 30, 2025, and the revenue and earnings of the combined entity had the acquisition date been January 1, 2024, is presented as follows:
| Schedule of pro forma revenue and earnings | ||||||||
| Revenue | Net income (loss) | |||||||
| Actual for the period from acquisition to September 30, 2025 | $ | $ | ||||||
| 2025 supplemental pro-forma from January 1, 2025 to September 30, 2025 | $ | $ | ( |
) | ||||
| 2024 supplemental pro-forma from January 1, 2024 to September 30, 2024 | $ | $ | ( |
) | ||||
The
supplemental pro forma information for the nine months ended September 30, 2025 was adjusted to exclude (i) non-recurring legal fees
of $
The
supplemental pro forma information for the nine months ended September 30, 2024 was adjusted to exclude (i) $
| 15 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 5. | Property and equipment |
As
disclosed in note 4 above, in terms of an APA agreement entered into on October 22, 2024, on January 9, 2025, the Company consummated
the acquisition of the Acquired Assets of ERC, which included furniture and equipment, estimated at $
Property and equipment consists of the following:
| Schedule of property and equipment | ||||||||||||||||||
| September
30, 2025 |
December 31, 2024 | |||||||||||||||||
Useful lives |
Cost | Accumulated depreciation | Net book value | Net book value | ||||||||||||||
| Leasehold improvements | $ | $ | ( |
) | $ | $ | ||||||||||||
| Furniture and fixtures | ( |
) | ||||||||||||||||
| Vehicles | ( |
) | ||||||||||||||||
| Computer equipment | ( |
) | ||||||||||||||||
| Capital work in progress | — | — | — | |||||||||||||||
| $ | $ | ( |
) | $ | $ | |||||||||||||
Depreciation
expense for the three months ended September 30, 2025 and 2024 was $
| 6. | Intangibles |
As
disclosed in note 4 above, in terms of an APA agreement entered into on October 22, 2024, on January 9, 2025, the Company consummated
the acquisition of the Acquired Assets of ERC, which included a provisional valuation of customer relationships of $
Intangible assets consist of the following:
| Schedule of intangible assets | ||||||||||||||||||
| Useful lives |
September
30, 2025 |
December 31, 2024 | ||||||||||||||||
| Cost | Accumulated amortization | Net book value | Net book value | |||||||||||||||
| Customer relationships | $ | $ | ( |
) | $ | $ | ||||||||||||
| Non-compete agreement | ( |
) | ||||||||||||||||
| Health care Provider license | ( |
) | ||||||||||||||||
| $ | |
$ | ( |
) | $ | $ | |
|||||||||||
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 $
| 7. | Goodwill |
Goodwill represents the excess purchase price paid over the fair value of assets acquired, including any other identifiable intangible assets.
As
disclosed in note 4 above, in terms of an APA agreement entered into on October 22, 2024, on January 9, 2025, the Company consummated
the acquisition of the Acquired Assets of ERC, which included goodwill estimated at $
| Schedule of goodwill | ||||
| Amount | ||||
| Opening balance as of January 1, 2025 | $ | |||
| Acquisition of the assets and liabilities assumed of Edgewater Recovery Center | ||||
| Closing balance as of September 30, 2025, provisional | $ | |||
The Company evaluates goodwill for impairment on an annual basis during the last month of each year and at an interim date if indications of impairment exist. Goodwill impairment is determined by comparing the fair value of the reporting unit 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.
| 16 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 8. | Leases |
The Company acquired ATHI on July 1, 2021, ATHI’s wholly owned subsidiary, Evernia Health Center, LLC (“Evernia”) had entered into an operating lease agreement for certain real property located at 950 Evernia Street, West Palm Beach, Florida (“Evernia Street”), with effect from February 1, 2019 for a period of three years, expiring on February 1, 2022. Under the terms of the lease agreement, the lease was extended during October 2021 for a further 5-year period until February 1, 2027.
On October 3, 2022, the Company entered into a purchase and sale agreement with Evernia Station Limited Partnership for the purchase of Evernia Street, 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 Evernia Street. 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 immediately sold Evernia Street to Pontus EHC Palm Beach, LLC, a Delaware limited liability company and a portfolio company of Pontus Net Lease Advisors, LLC, and entered into a long-term lease for Evernia Street with an initial term of twenty years, and two ten-year extension options. The lessor is Pontus EHC Palm Beach, 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 it 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.
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 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 it 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.
As disclosed in note 4 above, in terms of an APA agreement entered into on October 22, 2024, on January 9, 2025, the Company consummated the acquisition of the Acquired Assets of ERC. Simultaneously, with the acquisition of the assets of ERC, BH Properties, a company controlled by Mr. Shawn Leon, the Company’s CEO and a related party, acquired certain of the real property associated with the operations of ERC.
The acquired properties are fully leveraged and required personal guarantees which the Company was unable to provide. The entities owning the real property were acquired in a separate transaction by BH Properties, which then, through its acquired subsidiaries entered into lease agreements with ARIA Kentucky on an arms-length basis, at market related rates.
| 17 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 8. | Leases (continued) |
The Company entered into 7 lease agreements, effective January 1, 2025, with its related party, BH Properties, all of which were for an initial period of five years with an option to extend for an additional five years, since the transaction is between related parties the option is likely to be exercised, the lease agreements all include an annual escalation of 1.5% of the base rent and the lessee is responsible for utilities, property taxes, repairs and maintenance expenditure and insurance costs.
The Company, through its subsidiary Aria Kentucky, entered into 2 lease agreements, effective July 1, 2025, with its related party, BH Properties and its subsidiary, Viking Assets, LLC. The first lease is for property situated at 417 South 4th Street, Paducah, Kentucky, with an annual base rent of $96,000 and the second lease is for property situated at 425 South 6th Street, Paducah Kentucky, with an annual base rent of $72,000. Each lease is for an initial period of four years and six months with an option to extend for an additional five years, since the transaction is between related parties the option is likely to be exercised. Each lease agreement includes an escalation of 1.5% of the base rent, commencing on January 1, 2026, and annually thereafter. The Company is responsible for utilities, property taxes, repairs and maintenance expenditure and insurance costs.
The details of the related party property leases are as follows:
| Schedule of related party property leases | ||||
| Description | Base
Rental (annual) | |||
| 425 Clinic Drive, Morehead, Kentucky | $ | |||
| 445 Clinic Drive, Morehead, Kentucky | ||||
| 1111 US 60 W, Morehead, Kentucky | ||||
| 2180 US 60 W, Morehead, Kentucky | ||||
| 721 White Street, Morehead Kentucky | ||||
| 214 Jackson Drive, Morehead, Kentucky | ||||
| 1135 Rodburn Hollow Drive, Morehead, Kentucky | ||||
| 417 South 4th Street, Paducah, Kentucky | ||||
| 425 South 6th Street, Paducah, Kentucky | ||||
| Total | $ | |||
The Company also entered into a third party lease agreement with Trent Developments, LLC for a property located at 141, 141.5 and 143 East Main Street, Morehead Kentucky. The lease is for a period of 5 years commencing on January 1, 2025, with a base annual rental of $138,000, escalating by 1.5% on the second anniversary of the lease term and each anniversary thereafter.
In addition, the Company entered into an assignment of lease agreement with MAT Properties, LLC for a property located at 154 S Owens Road, Morehead Kentucky. The original lease was modified and the term of the lease was extended to 2 years commencing on January 1, 2025, ending on December 31, 2027. The base rental of the lease is $180,000 per annum with no escalations.
To determine the present value of minimum future lease payments for the operating leases entered into, the Company used the borrowing rate of 7.72% at which it had recently secured to consummate the acquisition of the assets of Edgewater Recovery and is indicative of the borrowing costs the Company would expect to incur on asset funding.
The present value of the future minimum lease payments of the properties leased from related parties was $7,622,084 on January 9, 2025 and $1,243,831 on July 1, 2025, totaling $8,865,915 and the present value of future lease payments of properties leased from third parties was $1,149,642 on January 1, 2025.
Right of use assets are included in the unaudited condensed consolidated balance sheet are as follows:
| Schedule of right of use assets are included in the consolidated balance | ||||||||
| September 30, 2025 | December 31, 2024 | |||||||
| Non-current assets | ||||||||
| Right-of-use assets – finance leases, net of depreciation, included in Property and equipment | $ | $ | ||||||
| Right-of-use assets – operating leases, net of amortization | ||||||||
| Right-of-use assets – operating leases, related party, net of amortization | ||||||||
| $ | $ | |||||||
| 18 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 8. | Leases (continued) |
Lease costs consists of the following:
| Schedule of lease costs | ||||||||
| Nine months ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Finance lease cost: | ||||||||
| Depreciation of right-of-use assets | $ | $ | ||||||
| Interest expense on finance lease liabilities | ||||||||
| Total finance lease cost | ||||||||
| Operating lease costs | ||||||||
| Third parties | $ | $ | ||||||
| Related parties | ||||||||
| Total Operating lease costs | ||||||||
| Lease cost | $ | $ | ||||||
Other lease information:
| Schedule of other lease | ||||||||
| Nine months ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||||||
| Operating cash flows from finance leases | $ | ( | ) | $ | ( | ) | ||
| Operating cash flows from operating leases – third parties | ( | ) | ( | ) | ||||
| Operating cash flows from operating leases – related parties | ( | ) | ||||||
| Financing cash flows from finance leases | ( | ) | ( | ) | ||||
| Cash paid for amounts included in the measurement of lease liabilities | $ | ( | ) | $ | ( | ) | ||
| Weighted average lease term – finance leases | ||||||||
| Weighted average remaining lease term – operating leases | ||||||||
| Discount rate – finance leases | % | % | ||||||
| Discount rate – operating leases | % | % | ||||||
Maturity of Leases
Finance lease liability
The amount of future minimum lease payments under finance leases at September 30, 2025 is as follows:
| Schedule of future minimum lease payments under finance leases | ||||
| Amount | ||||
| Remainder of 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| Total finance lease | ||||
| Imputed interest | ( | ) | ||
| Total finance lease liability | $ | |||
| Disclosed as: | ||||
| Current portion | $ | |||
| Non-Current portion | ||||
| Lease liability | $ | |||
| 19 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 8. | Leases (continued) |
Operating lease liability
The amount of future minimum lease payments under operating leases are as follows:
| Schedule of future minimum lease payments under operating leases | ||||
| Amount | ||||
| Remainder of 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2029 and thereafter | ||||
| Total undiscounted minimum future lease payments | ||||
| Imputed interest | ( |
) | ||
| Total operating lease liability | $ | |||
| Disclosed as: | ||||
| Current portion – third parties | $ | |||
| Current portion – related parties | ||||
| Non-current portion – third parties | ||||
| Non-current portion – related parties | ||||
| Lease liability | $ | |||
| 9. | Bank loans |
As disclosed in note 4 above, in terms of an APA agreement entered into on October 22, 2024, on January 9, 2025, the Company consummated the acquisition of the Acquired Assets of ERC ad certain assumed liabilities. In order to secure the acquisition of the assets, the Company raised commercial loans from Peoples Bank to settle other bank debt related to Edgewater and its founder.
The bank loans are disclosed as follows:
| Schedule of bank loans | ||||||||||||||||||||||
| Interest rate | Maturity Date | Principal | Interest | September 30, 2025 |
December 31, 2024 | |||||||||||||||||
| Peoples Bank | ||||||||||||||||||||||
| Promissory note | % | $ | $ | $ | $ | — | ||||||||||||||||
| Commercial loan | % | — | ||||||||||||||||||||
| Commercial loan | ||||||||||||||||||||||
| $ | $ | $ | $ | — | ||||||||||||||||||
| Disclosed as follows | ||||||||||||||||||||||
| Bank loans - current portion | $ | $ | — | |||||||||||||||||||
| Bank loans – long term portion | — | |||||||||||||||||||||
| $ | $ | — | ||||||||||||||||||||
On January 6, 2025, the Company entered into a Loan and Security Agreement (“LSA”) with Peoples Bank of Hazard (“Peoples”), whereby Peoples advanced the Company the following funds:
| · | Promissory note |
$4,250,000 to settle existing debt owed by the founder of Edgewater Recover Center to Peoples. The promissory note bears interest at 7.5% per annum calculated on a 360 day year and matures on February 27, 2028. The Company is required to make monthly interest payments only for the first six months of the promissory note, commencing on February 6, 2025 until July 6, 2025, for the next twelve months, monthly repayments of $50,000 of principal and interest, commencing on August 6, 2025 to July 6, 2026, for the following twelve months, monthly repayments of $100,000 of principal and interest, commencing on August 6, 2026 to July 6, 2027, for the following six months, monthly repayment of $125,000 of principal and interest, commencing on August 6, 2027 to January 6, 2028, and a final payment of the remaining principal and interest on February 27, 2028. The loan is secured by properties belonging to BH Properties, LLC, and personal guarantees by Shawn Leon, the Company’s CEO.
The Company made interest payments in the aggregate amount of $185,052 during the nine months ended September 30, 2025.
| 20 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 9. | Bank loans (continued) |
| · | Commercial loan |
The Company originally assumed the obligations of an auto loan from Edgewater with a principal balance owing of $100,000 and accrued interest thereon of $4,044, bearing interest at 8.5% per annum. On March 20, 2025, the Company repaid $30,720 of principal and interest outstanding on the loan and entered into a new commercial loan agreement of $75,000 bearing interest at 7.75% per annum, with monthly repayments of $3,392.
The Company repaid principal of $42,623 and interest of $8,446, totaling $51,069 during the nine months ended September 30, 2025.
| · | On June 30, 2025, the Company entered into a commercial promissory note, whereby the Company was advanced $300,000, net of loan origination and documentation fees of $3,500, for net proceeds of $296,500. The loan bears interest at a variable interest rate of the New York prime rate plus 0.5%, currently the interest rate is 7.5% and is calculated on an actual over 360 day basis. The interest rate will never exceed 10% per annum or fall below 6% per annum. The loan matures on 1 July 2026, or on demand by the lender. Monthly interest only payments are to be made. The loan may be prepaid without penalty and any funds prepaid may be re-borrowed by the Company until the maturity date, unless precluded from doing so by the lender. The loan is secured by a pledge of the membership interest in Aria Kentucky, LLC and blanket liens on all of the assets of Aria Kentucky, LLC, including accounts receivable and all other business assets. In addition the lender holds guarantees from Ethema Health Corporation and Shawn Leon. |
The Company
paid interest of $
| 10. | Assumed liability |
As disclosed in note 4 above, in terms of an APA agreement entered into on October 22, 2024, on January 9, 2025, the Company consummated the acquisition of the Acquired Assets of ERC and certain assumed liabilities.
Edgewater Recover Center had entered into a settlement agreement with the Department of Justice and the Department of Health and Human Services and the State of Kentucky and the Department of Medicaid Services in Kentucky, relating to false claims submitted to Medicare. The balance of the liability assumed by the Company amounted to a principal of $1,658,105 and accrued interest thereon of $44,614. The balance accrued interest at 4.75% per annum and is repayable in thirteen installments, the first installment of $44,614 was paid prior to the consummation of the acquisition transaction and a further twelve installments commencing on February 1, 2025 to December 1, 2026.
The Company repaid principal of $159,085 and accrued interest of $31,329, totaling $190,414 during the nine months ended September 30, 2025.
| Schedule of assumed liability | ||||||||||||||||||||||
| Interest rate | Maturity Date | Principal | Interest |
September 30, 2025 |
December 31, 2024 | |||||||||||||||||
| Assumed liability | % | $ | $ | $ | $ | — | ||||||||||||||||
| Disclosed as follows | ||||||||||||||||||||||
| Assumed liability - current portion | $ | $ | — | |||||||||||||||||||
| Assumed liability - long term portion | — | |||||||||||||||||||||
| $ | $ | — | ||||||||||||||||||||
| 11. | Short-term convertible notes |
The short-term convertible notes consist of the following:
| Interest rate | Maturity Date | Principal | Interest | September 30, 2025 |
December 31, 2024 | |||||||||||||||||
| Auctus Fund, LLC | % | $ | $ | $ | $ | |||||||||||||||||
| Joshua Bauman | % | |||||||||||||||||||||
| Series N convertible notes | % | |||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||
| 21 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 11. | Short-term convertible notes (continued) |
Auctus Fund, LLC
On August 7, 2019, the Company, entered into a Securities Purchase Agreement with Auctus Fund, LLC, pursuant to which the Company issued a Convertible Promissory Note in the aggregate principal amount of $225,000. The Note had a maturity date of May 7, 2020 and bore interest at the rate of ten percent per annum from the date on which the Note was issued until the same became due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company had the right to prepay the Note in terms of agreement. The outstanding principal amount of the Note is convertible at any time and from time to time at the election of Auctus Fund, LLC during the period beginning on the date that is 180 days following the issue date into shares of the Company’s common stock at a conversion price equal to 60% of the lowest closing bid price of the Company’s common stock for the thirty trading days prior to conversion.
On June 15, 2020, The Company entered into an amended agreement with Auctus whereby the conversion feature of the note was removed and the Company agreed to discharge the principal amount of the note by nine equal monthly installments of $25,000 commencing in October 2020. During the year ended December 31, 2021, the Company repaid Auctus the principal sum of $50,000.
During March 2022, the Company paid $20,000 of principal on the convertible note, thereby reducing the principal outstanding to $80,000.
During February 2023, the Company paid $10,000 of principal on the convertible note, thereby reducing the principal outstanding to $70,000. The note matured May 7, 2020, Auctus Fund LLC has not declared a default and we are in constant discussion with the lender on settling the note.
On May 13, 2025, the Company entered into an Amendment #2 to the convertible promissory note, whereby the Company will repay the balance outstanding as follows; $10,000 on June 1, 2025, $15,000 on July 1, 2025 and three installments of $20,000 monthly thereafter.
The
Company repaid $
Joshua Bauman
On August 9, 2023, the Company issued a convertible promissory note to Mr. 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. The note was not automatically converted into shares of common stock upon maturity and remains outstanding, although the note is in technical default, a default has not been declared and we are negotiating with the note holder on amending the terms or repaying the note.
During November 2023 and December 2023, the Company repaid $29,224 and $4,597 in principal and interest, respectively. No repayments were made during the year ended December 31, 2024.
During the nine months ended September 30, 2025, the Company repaid principal of $43,200 and interest of $18,800 totaling $62,000.
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 nine months ended September 30, 2025, the Company repaid interest of $49,804 on the Series N convertible notes.
| 22 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 12. | 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 |
September 30, 2025 |
December 31, 2024 Amount | |||||||||||||||||||
| LXR Biotech | % | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Mirage Realty | % | |||||||||||||||||||||||||
| Third Party | % | |||||||||||||||||||||||||
| Revolving line of credit | % | |||||||||||||||||||||||||
| % | ||||||||||||||||||||||||||
| M. Baldassara | % | |||||||||||||||||||||||||
| R. Baldassara | % | |||||||||||||||||||||||||
| Series R Promissory notes | % | |||||||||||||||||||||||||
| Total notes payable | $ | $ | $ | $ | $ | |||||||||||||||||||||
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.
Mirage Realty, LLC
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 matured on November 15, 2024.
On October 29, 2024, the maturity date of the note was extended to January 2025 with interest accruing thereon at 18% per annum. On February 13, 2025, we received a further extension on this note to May 15, 2025 with interest thereon remaining at 18% per annum. The Company is negotiating with the note holder and continues to accrue interest at 18% per annum.
During the nine months ended September 30, 2025, the Company paid interest of $81,000 on the note.
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.
The balance outstanding on the note consists of principal of CDN$344,580 ($247,525) and interest accrued thereon of CDN$38,804 ($27,875) totaling CDN$383,384 ($275,400). During the nine months ended September 30, 2025, the Company paid interest of CDN$10,000 ($7,305).
| 23 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 12. | Short-term notes (continued) |
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 Agreement 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 and the default interest rate is 10% 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.
On September 4, 2025, the Company received proceeds of $70,000 on a line of credit advance of $73,500, repayable on September 15, 2025. This amount was repaid and the additional $3,500 was recorded as an amortization of debt discount.
During the nine months ended September 30, 2025, the Company repaid principal of $120,177 and interest of $103,323.
M. Baldassara and R. Baldassara
On May 22, 2025, the Company entered into promissory note agreements with each of M. Baldassara and R. Baldassara for an aggregate principal amount of $120,000 each, bearing interest at 10% per annum and repayable on December 31, 2025. The promissory notes are unsecured.
Series R senior secured promissory notes
Between April 15, 2024 and May 10, 2024, the Company entered into securities purchase agreements with accredited investors whereby the Company issued 6 senior secured promissory notes with an aggregate issue price of $660,000 for gross proceeds of $600,000. The promissory notes bear interest at 7.5% per annum, interest is payable quarterly at an increasing rate of 3%, 6%, 9% and 12% of the principal outstanding. The notes matured on March 31, 2025 and have not been repaid as yet, the Company is negotiating with the noteholders on extension and settlement options.
Between May 2, 2024 and May 10, 2024, the Company entered into exchange agreements with three investors, whereby the investors exchanged three series N notes with a principal amount outstanding of $450,000 for senior secured Series R promissory notes with an aggregate issue price of $495,000. The promissory notes bear interest at 7.5% per annum, interest is payable quarterly at an increasing rate of 3%, 6%, 9% and 12% of the principal outstanding. The notes matured on March 31, 2025 and are currently being re-negotiated with the note holders.
During the nine months ended September 30, 2025, the Company paid interest of $37,679 on the Series R senior secured promissory notes.
| 13. | Promissory Note |
On
May 15, 2024, the Company entered into a Stock Purchase Agreement whereby it acquired the remaining 25% of ATHI representing shares
from the minority stockholder for gross proceeds of $
| Schedule of promissory note | ||||||||
| September 30, 2025 | December 31, 2024 | |||||||
| Opening balance | $ | $ | ||||||
| Promissory note issued | ||||||||
| Repayments | ( | ) | ( | ) | ||||
| $ | $ | |||||||
During the nine months ended September 30, 2025, the Company repaid $110,000 of the principal outstanding on the promissory note.
| 24 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 14. | Funding arrangements, net |
May 30, 2024 funding
On May 30, 2024, the Company, through its subsidiary Evernia Health Center, LLC (“Evernia”), entered into a financing arrangement with Fortunate Sons (“Fortunate”), whereby it received proceeds of $300,000. The Company also incurred fees of $5,000, resulting in net proceeds of $295,000, in addition the Company incurred an additional fee of $75,000 related to this funding, resulting in total fees and discount of $155,000 which was amortized over the original term of the funding. 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 maturity date of this funding was February 24, 2025, however the original payment schedule was not adhered to, and we are in constant communication with Fortunate regarding repayment of the balance.
The discount and fees totaling $155,000 associated with this funding was capitalized and was being amortized using the effective interest method over the initial repayment period. The Company has repaid $204,250 and the balance outstanding as of September 30, 2025 was $170,750.
August 30, 2024 funding
On August 30, 2024, the Company, through its subsidiary Evernia, entered into a financing arrangement with Itria Ventures LLC (“Itria”), whereby it received proceeds of $247,000, net of discount and fees of $65,500. The Company is obliged to pay $8,013 per week until the amount of $312,500 is paid in full, the maturity date of this funding was June 3, 2025.
The discount and fees totaling $65,500 associated with this funding was capitalized and was being amortized using the effective interest method over the repayment period. The Company made weekly cash payments of $8,013 totaling $232,372 and settled the outstanding balance of $88,141 on March 25, 2025, partially out of the proceeds of an additional financing arrangement entered into on March 25, 2025, thereby extinguishing the debt and accelerating the amortization of the remaining discount and fees.
October 9, 2024 funding
On October 9, 2024, the Company, through its subsidiary Evernia, entered into a financing arrangement with Itria, whereby it received proceeds of $148,000, net of discount and fees of $39,500. The Company is obliged to pay $4,808 per week until the amount of $187,500 is paid in full. The maturity date of this funding was July 10, 2025.
The discount and fees totaling $39,500 associated with this funding was capitalized and is being amortized using the effective interest method over the repayment period. The Company made weekly cash payments of $4,808 totaling $57,692 and settled the outstanding balance of $119,308, net of an early settlement discount of $10,500, thereby extinguishing the debt.
January 6, 2025 funding
On January 6, 2025, the Company, through its subsidiary Evernia, entered into a financing arrangement with Itria, whereby it received proceeds of $247,000, net of discount and fees of $60,500. The Company is obliged to pay $7,885 per week until the amount of $307,500 is paid in full. The maturity date of this funding is October 6, 2025.
The discount and fees totaling $60,500 associated with this funding was capitalized and is being amortized using the effective interest method over the repayment period. The Company made weekly cash payments of $7,885 totaling $157,692 and settled the outstanding balance with a payment of $157,692 out of the proceeds of the May 28, 2025 funding, resulting in an overpayment of $7,885, which was refunded on August 12, 2025. The settlement resulted in the extinguishment of the debt and the acceleration of the remaining unamortized debt discount of $21,890.
February 13, 2025 funding
On February 13, 2025, the Company, through its subsidiary Evernia, entered into financing arrangement with CFG Merchant Solutions, LLC (“CFG”), whereby it received proceeds of $124,375, net of discount and fees of $41,875. The Company is obliged to pay $3,778 per week until the amount of $166,250 is paid in full. The maturity date of this funding is December 19, 2025.
The discount and fees totaling $41,875 associated with this funding was capitalized and is being amortized using the effective interest method over the repayment period. The Company made weekly cash payments of $3,778 totaling $120,909, and the balance outstanding at September 30, 2025 was $41,989, net of debt discount of $3,352.
| 25 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 14. | Funding arrangements, net (continued) |
February 18, 2025 funding
On February 18, 2025, the Company, through its subsidiary Evernia, entered into a financing arrangement with Purpletree Funding, LLC (“Purpletree”), whereby it received proceeds of $74,250, net of discount and fees of $25,500. The Company is obliged to pay $3,563 per week until the amount of $99,750 is paid in full. The maturity date of this funding is September 2, 2025.
The discount and fees totaling $25,500 associated with this funding was capitalized and is being amortized using the effective interest method over the repayment period. The Company made weekly cash payments of $3,563 totaling $99,750, thereby extinguishing the debt.
March 25, 2025 funding
On March 25, 2025, the Company, through its subsidiary Evernia, entered into a financing arrangement with Itria, whereby it received proceeds of $222,250, net of discount and fees of $70,250. The Company is obliged to pay $7,500 per week until the amount of $292,500 is paid in full. The Company used $88,141 of the proceeds to settle the August 30, 2024 funding. The maturity date of this funding is December 24, 2025.
The discount and fees totaling $70,250 associated with this funding was capitalized and is being amortized using the effective interest method over the repayment period. The Company made weekly cash payments of $7,500, totaling $157,500 and settled the outstanding balance with a payment of $147,169 out of the proceeds of the August 20, 2025, resulting in an overpayment of $12,869. This refund is expected in November 2025.
April 9, 2025 funding
On April 9, 2025, the Company, through its subsidiary Aria Kentucky, LLC (“Aria KY”) entered into a financing arrangement with Itria, whereby it received proceeds of $494,500, net of discount and fees of $130,500. The Company is obliged to pay $12,019 per week until the amount of $625,000 is paid in full. The maturity date of this funding is April 14, 2026.
The discount and fees totaling $130,500 associated with this funding was capitalized and is being amortized using the effective interest method over the repayment period. The Company made weekly cash payments of $12,019, totaling $288,462 and the balance outstanding at September 30, 2025 was $295,726, net of debt discount of $40,812.
May 28, 2025 funding
On May 28, 2025, the Company, through its subsidiary Evernia, entered into a financing arrangement with Itria, whereby it received proceeds of $296,500, net of discount and fees of $81,500. The Company used $157,692 of the proceeds to settle the January 6, 2025 funding. The Company is obliged to make weekly cash payments of $7,269 until the amount of $378,000 is paid in full. The maturity date of this funding is December 24, 2025.
The discount and fees totaling $81,500 associated with this funding was capitalized and is being amortized using the effective interest method over the repayment period. The Company made weekly cash payments of $7,269, totaling $123,577 and the balance outstanding at September 30, 2025 was $217,200, net of debt discount of $37,223.
June 19, 2025 funding
On June 19, 2025, the Company, through its subsidiary Aria KY, entered into a financing arrangement with Itria, whereby it received proceeds of $97,500, net of discount and fees of $27,500. The Company is obliged to pay $3,205 per week until the amount of $125,000 is paid in full. The maturity date of this funding is March 19, 2026.
The discount and fees totaling $27,500 associated with this funding was capitalized and is being amortized using the effective interest method over the repayment period. The Company made weekly cash payments of $3,205, totaling $44,872 and the balance outstanding at September 30, 2025 was $68,765, net of debt discount of $11,363.
August 20, 2025 funding
On August 20, 2025, the Company, through its subsidiary Evernia, entered into a funding arrangement with Itria, whereby it received proceeds of $346,000, net of discount and fees of $105,500, The Company used $147,869 of the proceeds to repay the March 25, 2025 funding. The Company is obliged to pay $8,683 per week until the amount of $451,500 is paid in full. The maturity date of this funding is August 20, 2026.
The discount and fees totaling $105,500 associated with this funding was capitalized and is being amortized using the effective interest method over the repayment period. The Company made weekly cash payments of $8,683, totaling $43,413 and the balance outstanding at September 30, 2025 was $323,654, net of debt discount of $84,433.
| 26 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 15. | 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. The maturity date of PPP loans was changed to five years from issuance on June 5, 2020 by the federal government. The maturity date of the loan is May 3, 2026, which is in line with the repayment schedule on the loan. 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 September 30, 2025, the balance outstanding, including interest thereon was $21,395.
| 16. | Related parties |
Related party balances consist of the following:
| Schedule of related party payable | ||||||||
| September 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Advance from related party | ||||||||
| Eileen Greene | ||||||||
| Principal opening balance | $ | $ | ||||||
| Principal advance made | ||||||||
| Repayments | ( | ) | ||||||
| Debt discount opening balance | ( | ) | ||||||
| Debt discount at inception | ( | ) | ||||||
| Amortization of debt discount | ||||||||
| ( | ) | |||||||
| Total Related party advance | $ | $ | ||||||
| Related party payables | ||||||||
| Shawn E. Leon | $ | $ | ||||||
| Eileen Greene | ||||||||
| ERC Investments, LLC | ||||||||
| New Journey, LLC | ||||||||
| JDE Properties, LLC | ||||||||
| Viking Assets, LLC | ||||||||
| Charity operation | ||||||||
| Total related party payables | $ | $ | ||||||
| Note payable – related parties | ||||||||
| Loan advanced by ERC Investments, LLC | $ | $ | ||||||
| Accrued interest | ||||||||
| $ | $ | |||||||
| Loan advanced by New Journey, LLC | $ | $ | ||||||
| Accrued interest | ||||||||
| $ | $ | |||||||
| Total notes payable – Related party | $ | $ | ||||||
Related party advance – Eileen Greene
On July 4, 2024, Ms. Greene advanced the Company $250,000 with an original issue discount of $35,000, totaling $285,000. The amount was being repaid in instalments of $5,769, however the Company paused repayment of this advance until the Company has the cash flow to make future payments. The advance is not expected to be repaid during the current financial year.
At September 30, 2025 and December 31, 2024, the Company owed Eileen Greene, the spouse of its CEO, Shawn Leon, related party advances of $273,461 and $264,966, net of unamortized discount, respectively.
| 27 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 16. | Related parties (continued) |
Related party payables
Shawn E. Leon
During July 2024, the related party payable of $1,092,701 owing to Leon Developments and $500,000 of the related party payable to Eileen Greene was assigned by the respective parties to Mr. Leon.
On July 12, 2024, Mr. Leon converted $1,500,000 of the related party payable into 3,000,000,000 shares of common stock at a conversion price of $0.0005 per share.
On September 27, 2024, Mr. Leon converted $6,000 of the related party payable into 600,000 shares of Series A Preferred stock at a conversion price of $0.01 per share.
During September 30, 2025, $120,000 of the related party payable to Eileen Greene was assigned to Mr. Leon.
During the nine months ended September 30, 2025, Mr. Leon earned management fees of $180,000 and for the year ended December 31, 2024, Mr. forfeited management fees due to him.
At September 30, 2025 and December 31, 2024, the Company had a payable to Shawn Leon of $30,795 and $144,353, respectively. Mr. Leon is a director and CEO of the Company. The balances owing to Mr. Leon are repayable on demand and the repayment date is uncertain.
Eileen Greene
During July 2024, Ms. Greene assigned $500,000 of the Related party payable to her to Mr. Leon.
On July 12, 2024, Ms. Greene converted $500,000 of the related party payable into 1,000,000,000 shares of common stock at a conversion price of $0.0005 per share.
During September 30, 2025, Ms. Greene assigned $120,000 of the related party payable to Mr. Leon.
The amounts owing to Ms. Greene are repayable on demand and the repayment date is uncertain.
At September 30, 2025 and December 31, 2024, the Company owed Eileen Greene, the spouse of its CEO, Shawn Leon, related party payables of $552,556 and $488,965, respectively.
ERC Investments, LLC
As disclosed in note 4 above, a liability owed to ERC Investments, LLC from Edgewater was assumed by the Company, the aggregate liability assumed by the Company on January 9, 2025 was $783,679.
The Company pays rent of $76,000 per month to ERC for three properties located in Morehead Kentucky.
At September 30, 2025, the balance owing to ERC was $904,580.
New Journey, LLC
As disclosed in note 4 above, a liability owed to New Journey, LLC from Edgewater was assumed by the Company, the aggregate liability assumed by the Company on January 9, 2025 was $46,615.
The Company pays rent of $5,500 per month to New Journey for two properties located in Morehead Kentucky.
At September 30, 2025, the balance owing to New Journey was $58,656.
JDE Properties, LLC
As disclosed in note 4 above, a liability owed to JDE from Edgewater was assumed by the Company, the aggregate liability assumed by the Company on January 9, 2025 was $37,525.
The Company pays rent of $5,000 per month to JDE for two properties located in Morehead Kentucky.
At September 30, 2025, the balance owing to JDE was $55,825.
Viking Assets, LLC
Viking Assets is owned by BH Properties, LLC and currently owns three properties, two of which are located in Paducah, Kentucky and a third in Morehead, Kentucky.
The Company pays rent of $14,000 per month to Viking Assets for two properties located in Paducah, Kentucky.
At September 30, 2025, the balance owing to Viking Assets was $7,800.
Charity
A charity controlled and managed by Shawn Leon advanced the Company $31,000 during the nine months ended September 30, 2025, of which $1,200 has been repaid. The amount owing to the charity is repayable on demand and the repayment date is uncertain.
| 28 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 16. | Related parties (continued) |
Note payable – Related party
ERC Investments, LLC
BH Properties, through its subsidiaries, ERCI, NJ and JDE, secured funding of $2,300,000 to settle certain obligations in those subsidiaries as well as obligations related to the acquisition of the assets of Edgewater by Aria Kentucky. The obligations related to the acquisition of the assets of Edgewater amounted to $33,767 and bears interest at 7.5% per annum calculated on a 360 day year and is secured by the properties owned by BH Properties and its subsidiaries.
At September 30, 2025, the balance owing to ERCI was $35,624.
New Journey Investments, LLC
BH Properties, through its subsidiaries, ERCI, NJ and JDE, secured funding of $500,000 to settle obligations related to the acquisition of certain properties into NJ and certain assets of Edgewater by Aria Kentucky. The obligations related to the acquisition of the assets of Edgewater amounted to $47,974 and bears interest at 6.875% per annum calculated on a 360 day year and is secured by the properties owned by BH Properties and its subsidiaries.
At September 30, 2025, the balance owing to NJ was $50,393.
All related party transactions occur in the normal course of operations and in terms of agreements entered into between the parties.
| 17. | Stockholders’ deficit |
| a. | 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 7,726,283,805 and 7,729,053,805 shares of common stock at September 30, 2025 and December 31, 2024, respectively.
On July 12, 2024, the Company issued 4,000,000,000 shares of common stock to Mr. Shawn Leon, the Company CEO and his spouse, Ms. Eileen
Greene, both related parties, for the conversion of $2,000,000 of related party payables, see note 16 above.
On November 17, 2024, the Company entered into a subscription agreement with a party related to Shawn Leon, whereby 165,000,000 shares of common stock were subscribed for at $0.0012 per share, for gross proceeds of $198,000. These shares have not been issued yet and the proceeds of $198,000 is recorded as a Share subscription liability until such time as the common shares are issued.
On February 18, 2025, the Company cancelled 2,770,000 shares which were acquired by Mr. Leon, the Company’s CEO from several individuals. Mr. Leon cancelled these shares.
| b. | Series A Preferred shares |
Authorized, issued and outstanding
The Company has authorized 10,000,000 Series A preferred shares with a par value of $0.01 per share. The Company has issued and outstanding 4,765,000 Series A Preferred shares at September 30, 2025 and December 31, 2024.
On September 27, 2024, the Company issued 600,000 shares of Series A Preferred stock to Mr. Shawn Leon for the conversion of $6,000 of related party payables, see note 16 above.
On November 17, 2024, 165,000 shares of Series A Preferred stock was sold to a relative of Mr. Leon for gross proceeds of $1,650.
| 29 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 17. | Stockholders’ deficit (continued) |
| c. | 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 September 30, 2025 and December 31, 2024 under the Plan.
| d. | 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.
A summary of the Company’s warrant activity during the period from January 1, 2024 to September 30, 2025 is as follows:
| No. of shares | Exercise
price per share |
Weighted average exercise price | ||||||||||
| Outstanding as of January 1, 2024 | $ to $ | $ | ||||||||||
| Granted | ||||||||||||
| Forfeited/cancelled | ||||||||||||
| Exercised | ||||||||||||
| Outstanding as of December 31, 2024 | $ to $ | $ | ||||||||||
| Granted | ||||||||||||
| Forfeited/cancelled | ||||||||||||
| Exercised | ||||||||||||
| Outstanding as of September 30, 2025 | $ to $ | $ | ||||||||||
The following table summarizes information about warrants outstanding at September 30, 2025:
| 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 |
||||||||||||||||
| $0.001000 | $ | $ | |||||||||||||||||||
| $0.002050 | |||||||||||||||||||||
| $ | $ | ||||||||||||||||||||
All of the warrants outstanding at September 30, 2025 are vested. The warrants outstanding at September 30, 2025 have an intrinsic value of $0.
| 30 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 18. | Segment information |
The Company provides rehabilitation services to customers in the U.S. These services are provided to customers at its Evernia, Addiction Recovery Institute of America facility located in Florida and its Addiction Recovery Institute of America, located in Kentucky. These facilities are regarded as one reporting segment.
The Company’s CODM reviews financial information presented and decides how to allocate resources based on net operating income (loss). Net income (loss) is used for evaluating financial performance.
Significant segment expenses include Salaries and wages, rent expense, professional fees, management fees, food expenses, marketing and advertising expenses, insurance expenses and depreciation and amortization expenses. Other operating expenses include all remaining costs necessary to operate our business, which primarily include other administrative expenses. The following table presents the significant segment expenses and other segment items regularly reviewed by our CODM.
The segment operating results of the one reportable segment for the three and nine months ended September 30, 2025 is disclosed as follows:
| Detox and rehab Services | ||||||||||||||||
| Three months ended September 30, 2025 | Three months ended September 30, 2024 | Nine months ended September 30, 2025 | Nine months ended September 30, 2024 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Salaries and wages | ||||||||||||||||
| Rent expense | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Client related expenses | ||||||||||||||||
| Marketing and advertising expenses | ||||||||||||||||
| Insurance expenses | ||||||||||||||||
| Property expenses | ||||||||||||||||
| Management fees | ||||||||||||||||
| Other operating expenses | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ||||||||||||
| Other Income (expense) | ||||||||||||||||
| Other income | ||||||||||||||||
| Other expense | ( | ) | ( | ) | ||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amortization of debt discount | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Foreign exchange movements | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income (loss) before income taxes | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| 19. | Net income (loss) per common share |
For the three and nine months ended September 30, 2025 and 2024, 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 income (loss) per common share | ||||||||
| Three and Nine months ended September 30, 2025 | Three and Nine months ended September 30, 2024 | |||||||
| Shares issuable upon exercise of warrants | ||||||||
| Shares issuable on conversion of convertible notes | ||||||||
| 31 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 20. | 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.
| b. | Other |
The Company has principal and interest payment commitments under the Convertible notes disclosed under Note 11 above. Conversion of these notes are at the option of the investor, if not converted these notes may need to be repaid.
From time to time, the Company and its subsidiaries enter into legal disputes in the ordinary course of business. The Company believes there are no material legal or administrative matters pending that are likely to have, individually or in the aggregate, a material adverse effect on its business or results of operations.
| 32 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 21. | Subsequent events |
Funding arrangements
September 30, 2025 funding
On September 30, 2025, the Company, through its subsidiary, Aria KY entered into a funding arrangement with Itria, whereby it received $247,000, net of discount and fees of $65,500. The Company is obliged to pay $6,010 per week until the amount of $312,500 is paid in full. The maturity date of this funding is September 30, 2026. The proceeds of this funding was received on October 2, 2025.
Letter of intent to acquire certain assets and legal entities
On October 20, 2025, the Company entered into an exclusive letter of intent (“LOI”) with Addiction Recovery Care LLC (“Vendor”) to purchase certain of the assets and separate entities operating under the ARC brand name in Kentucky, expiring 90 days from signature thereof. On November 18, 2025, we entered into an amendment to the LOI removing the exclusivity clause, with all other terms remaining the same. The potential assets to be purchased are of the ARC in-patient facilities in Kentucky operating in Inez, Pikeville, Owensboro and Ashland, along with out-patient facilities in Kentucky operating in Prestonsburg, Mount Sterling, Louisa, Ashland and Lexington. The potential separate entities to be purchased include a Psychiatric Hospital, a Pharmacy, a Medical Laboratory and a Rural Health Clinic. The addiction treatment and psychiatric facilities have a capacity of approximately 900 patients. There are likely to be related real estate transactions involved in the acquisitions which will remain outside of the Company but could be utilized to generate substantial new equity for the Company.
The proposed funding of the purchase price will be approximately 25% in cash, 25% in a vendor note and 50% in equity linked funding from the vendor. The cash portion will be raised by issuance of new equity and the proceeds from sale and subsequent leasing of certain of the ARC facilities.
The Company intends on creating a new entity (“NewcoARIA”) to acquire the ARC assets and separate entities and will ultimately also hold the Company’s existing Florida and Kentucky treatment entities. NewcoARIA will be initially owned by Ethema, new investors and the Vendor. It is likely that the Company will pursue an Initial Public Offering of NewcoARIA on a senior U.S. exchange.
Other than the above, the Company has evaluated subsequent events through the date the unaudited condensed consolidated financial statements were issued and did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
| 33 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Statements contained in this management discussion and analysis of financial condition and results of operations, 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.
P1an of Operation
During the next twelve months, the Company plans to continue to grow the Rehabilitation and detox business organically or through acquisitions, should any opportunities present themselves.
Acquisition of Edgewater Recovery Centers, LLC
On October 22, 2024, we, through a wholly owned subsidiary, Aria Kentucky, entered into an asset purchase agreement to acquire the business of Edgewater Recovery Centers, LLC (“ERC”) from ERC and John Elam (the ”Seller”), located in Morehead and Paducah, Kentucky through a purchase of the assets of ERC, including but not limited to all current assets existing at the time of closing, all cash balances and rights to receive cash, all equipment, machinery, all warranties related to the business and acquired assets, all intangible personal property, intellectual property, all business inventories, all property leases associated with the business, all assumed contracts, all governmental authorizations; and all information and records, including patient records, as defined in the APA. Certain of the real prop associated with the operations of is fully leveraged and requires credit and personal guarantees which the Company is unable to provide. The entities owning the real property were acquired in a separate transaction by BH Properties, a company controlled by Mr. Shawn Leon, the Company’s CEO and therefore a related party. BH Properties through its acquired subsidiaries then entered into lease agreements with ARIA Kentucky on an arms-length basis, at market related rates.
On January 9, 2025, we consummated the Acquisition of the Acquired Assets of ERC. Pursuant to the terms of the APA, at closing ARIA Kentucky paid the Seller $250,000 and assumed certain liabilities related to the Acquired Assets, including trade payables and liabilities under assumed contracts and certain specifically identified liabilities, including a settlement agreement with the United States government and the State of Kentucky and certain obligations as a borrower or guarantor related to banking obligations.
The results of ARIA Kentucky have been included in our unaudited condensed consolidated financial statements effective January 9, 2025.
Critical accounting policies and estimates
The significant accounting policies and estimates of the Company were described in Note 2 to the Audited Consolidated Financial Statements included in the Company’s Form 10-K for the fiscal year ended December 31, 2024. There have been no material changes to our critical accounting policies and estimates from the information provided in Note 2 and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2024 Form 10-K. The most recently adopted accounting pronouncements and accounting pronouncements to be adopted by the Company are described in Note 2 in the Notes to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Results of operations for the three months ended September 30, 2025 and 2024.
Revenues
Revenues were $5,529,402 and $1,760,000 for the three months ended September 30, 2025 and 2024, respectively, an increase of $3,769,402 or 214.2%. Revenues include $3,032,945 from the acquisition of the business of ERC. Revenue from existing business was $2,496,457 and $1,760,000 for the three months ended September 30, 2025 and 2024, respectively, an increase of $736,457 or 41.8%. The increase is primarily due to the increase in patient count at the West Palm Beach facility and the acquisition of the Boca Raton rehab and detox facility during June 2024, which commenced revenue generating operations in January 2025, after obtaining all necessary regulatory approvals.
| 34 |
Operating Expenses
Operating expenses were $4,983,387 and $2,483,708 for the three months ended September 30, 2025 and 2024, respectively, an increase of $2,499,679 or 100.6%. Operating expenses include $2,685,154 from the acquisition of the business of ERC. Operating expenses from existing operations was $2,298,233 and $2,483,708 for the three months ended September 30, 2025 and 2024, respectively, a decrease of $185,475 or 7.5%. The decrease is primarily due to the following:
| ● | General and administrative expenses was $1,053,096 and $417,888 for the three months ended September 30, 2025 and 2024, respectively, an increase of $635,208 or 152.0%. General and administrative expenses include $543,696 from the acquisition of the business of ERC. General and administrative expenses from existing operations was $509,400 and $417,888 for the three months ended September 30, 2025 and 2024, respectively, an increase of $91,512 or 21.9%. The increase is primarily due to; (i) an increase in client costs related to an increased patient count and the additional client costs incurred in the Boca Cove facility; An increase in property expenses, including the Boca Cove facility for the nine months during the current period and an increase in insurance costs, with the additional location at Boca Cove now insured. |
| ● | Salaries and wages were $2,524,179 and $839,015 for the three months ended September 30, 2025 and 2024, respectively, an increase of $1,685,164 or 200.9%. Salaries and wages includes $1,503,596 from the acquisition of the business of ERC. Salaries and wages from existing operations was $1,020,583 and $839,015 for the three months ended September 30, 2025 and 2024, respectively, an increase of $181,568 or 21.6% The increase is due to the acquisition of the Boca Raton facility which was fully staffed up and operational beginning January 2025. |
| ● | Rent expense was $780,532 and $392,772 for the three months ended September 30, 2025 and 2024, respectively, an increase of $387,760 or 98.7%. Rent expense includes $403,951 from the acquisition of the business of ERC. Rental expense from existing operations was $376,581 and $392,772 for the three months ended September 30, 2025 and 2024, respectively, a decrease of $16,191 or 4.1%. In the prior year an additional rental accrual of $51,853 was made related to a shortfall in the rental expense for the Boca Cove detox facility. |
| ● | Professional fees were $359,384 and $231,312 for the three months ended September 30, 2025 and 2024, respectively, an increase of $128,072 or 55.4%. Professional fees includes $152,209 from the acquisition of the business of ERC. Professional fees from existing operations was $207,175 and $231,312 for the three months ended September 30, 2025 and 2024, respectively, a decrease of $24,137 or 10.4%. The decrease is primarily due to the professional fees incurred in the prior year on the acquisition of the non-controlling shareholders interest and the assets of the Boca Cove detox center. |
| ● | Management fees were $60,000 and $480,000 for the three months ended September 30, 2025 and 2024, respectively, a decrease of $420,000 or 87.5%. In the prior year an accrual was made for management fees to our CEO, but were subsequently reversed as these were not approved prior to year end. |
| ● | Depreciation and amortization expense was $206,196 and $122,721 for the three months ended September 30, 2025 and 2024, respectively, an increase of $83,475 or 68.0%. Depreciation and amortization includes depreciation and amortization from the acquisition of the business of ERC amounting to $81,702. Depreciation and amortization expense from existing operations was $124,494 and $122,721 for the three months ended September 30, 2025 and 2024, respectively, an increase of $1,773 or 1.4%. The increase is primarily due to minor asset additions during the current period. |
Operating income (loss)
Operating income was $546,015 and operating loss was $(723,708) for the three months ended September 30, 2025 and 2024, respectively, an increase of $1,269,723 or 175.4%. The increase is due to the increase in revenue, primarily due to the acquisition of ERC and the increased revenue in our Florida locations, offset by an increase in operating expenses, as discussed in detail above.
Other income
Other income was $15 and $40,000 for the three months ended September 30, 2025 and 2024, respectively, a decrease of $39,985 or 99.9%. In the prior year, other income represented management fees earned from managing the entity prior to acquisition.
Other expense
Other expense was $0 and $971 the three months ended September 30, 2025 and 2024, respectively.
Interest income
Interest income was $2,006 and $766 for the three months ended September 30, 2025 and 2024, an increase of $1,240 or 161.9%. The interest income is interest earned on positive cash balances during the current period.
| 35 |
Interest expense
Interest expense was $348,098 and $167,575 for the three months ended September 30, 2025 and 2024, respectively, an increase of $180,523 or 107.7%. Included in interest expense is interest of $108,267 related to the acquisition of the business of ERC. Interest expense on the existing business was $239,831 and $167,575 for the three months ended September 30, 2025 and 2024, respectively, an increase of $72,256, primarily due to an increase in interest expense related to default interest on letter of credit funding, additional interest on Series R promissory notes which were entered into during the period March to May 2024, and interest on promissory notes issued to acquire the assets of the Boca Raton facility and the non-controlling shareholders interest in the prior year.
Amortization of debt discount
Amortization of debt discount was $158,064 and $141,205 for the three months ended September 30, 2025 and 2024, respectively, an increase of $16,859 or 11.9%. Included in amortization of debt discount is amortization of $57,301 related to funding arrangements in Aria Kentucky. Amortization of debt discount in the existing business was $100,763 and $141,205, a decrease of $40,442 or 28.6%. The amortization of debt discount relates primarily to short-term funding arrangements. The decrease is due to the timing of amortization of debt discount on funding arrangements, including funding from Fortunate and Sons and Funding arrangements from related parties, which have not been repaid as yet.
Foreign exchange movements
Foreign exchange movements were $10,828 and $(8,021) for the three months ended September 30, 2025 and 2024, 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 strengthened against the Canadian Dollar during the current period, resulting in an unrealized gain on Canadian denominated assets.
Net income (loss) before income taxes
Net income before income taxes was $52,702 and net loss before income taxes was $(1,000,714) for the three months ended September 30, 2025 and 2024, respectively, an increase of $1,053,416 or 105.3%. The increase is primarily due to the increase in operating income discussed above offset by the increase in interest expense and amortization of debt discount.
Income taxes
Income taxes was a credit of $13,434 and $0 for the three months ended September 30, 2025 and 2024, respectively, an increase of $13,434 or 100.0%. Income taxes represents the deferred tax movement on the value of certain identifiable intangibles acquired from Edgewater.
Net income (loss)
Net income was $66,136 and net loss was $(1,000,714) for the three months ended September 30, 2025 and 2024, respectively, an increase of $1,066,850 or 106.6%. The increase was primarily due to the increase in net income before income taxes and the movement in income taxes as discussed above.
Results of operations for the nine months ended September 30, 2025 and September 30, 2024.
Revenues
Revenues were $13,952,597 and $4,550,200 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $9,402,397 or 206.6%. Revenues include $7,835,447 from the acquisition of the business of ERC. Revenue from existing business was $6,117,150 and $4,550,200 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $1,566,950 or 34.4%. The increase is primarily due to the increase in patient count at the West Palm Beach facility and the acquisition of the Boca Raton rehab and detox facility during June 2024, which commenced revenue generating operations in January 2025, after obtaining all necessary regulatory approvals.
Operating Expenses
Operating expenses were $13,844,516 and $5,780,493 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $8,064,023 or 139.5%. Operating expenses include $7,343,423 from the acquisition of the business of ERC. Operating expenses from existing operations was $6,501,093 and $5,780,493 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $720,600 or 12.5%. The increase is primarily due to the following:
| ● | General and administrative expenses was $2,805,491 and $1,055,663 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $1,749,828 or 165.7%. General and administrative expenses include $1,463,373 from the acquisition of the business of ERC. General and administrative expenses from existing operations was $1,342,118 and $1,055,663 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $286,455 or 27.1%. The increase is primarily due to an increase in client costs related to an increased patient count and the additional client costs incurred in the Boca Cove facility, an increase in advertising and promotional activity to attract customers to our facilities and an increase in property expenses, which includes property taxes at the Boca cove facility for the full nine month. Period compared to five months from the prior period. |
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| ● | Salaries and wages were $6,830,699 and $2,279,788 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $4,550,911 or 199.6%. Salaries and wages includes $4,022,450 from the acquisition of the business of ERC. Salaries and wages from existing operations was $2,808,249 and $2,279,788 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $528,461 or 23.2% The increase is due to the acquisition of the Boca Raton facility which was fully staffed up and operational beginning January 2025. |
| ● | Rent expense was $2,287,447 and $932,035 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $1,355,412 or 145.4%. Rent expense includes $1,147,133 from the acquisition of the business of ERC. Rental expense from existing operations was $1,140,314 and $932,035 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $208,279 or 22.3%. The increase is primarily due to the additional rent incurred at the Boca Cove detox facility of $187,138 which was acquired in June 2024 and additional rental costs for an apartment in west Palm Beach during the current period. |
| ● | Professional fees were $1,135,197 and $686,994 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $448,203 or 65.2%. Professional fees includes $475,136 from the acquisition of the business of ERC. Professional fees from existing operations was $660,061 and $686,994 for the nine months ended September 30, 2025 and 2024, respectively, a decrease of $26,933 or 3.9%. Professional fees include fees incurred for the acquisition of the Edgewater facility and in the prior period due to the acquisition of the non-controlling shareholders interest and the assets of the Boca Cove detox center. |
| ● | Management fees were $180,000 and $480,000 for the nine months ended September 30, 2025 and 2024, respectively, a decrease of $300,000 or 62.5%. Management fees accrued in the prior year of $480,000 were reversed in the fourth quarter as these were not timely approved. In the current year the historical management fee of $20,000 per month which had been forfeited in previous years, due to the performance of the group, was accrued for our CEO in the current year. |
| ● | Depreciation and amortization expense was $605,682 and $346,013 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $259,669 or 75.0%. Depreciation and amortization includes depreciation and amortization from the acquisition of the business of ERC amounting to $235,331. Depreciation and amortization expense from existing operations was $370,351 and $346,013 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $24,338 or 7.0%. The increase is primarily due to additional deprecation incurred on assets acquired with the Boca Raton facility in June 2024. |
Operating income (loss)
The operating income was $108,081 and the operating loss was $(1,230,293) for the nine months ended September 30, 2025 and 2024, respectively, an increase of $1,338,374 or 108.8%. The increase is due to the increase in revenue, primarily due to the acquisition of ERC and the increased revenue in our Florida locations, offset by an increase in operating expenses, as discussed in detail above.
Other income
Other income was $172,346 and $40,000 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $132,346 or 330.9%. The increase in other income was primarily related to management fees earned from Edgewater Recovery based on business profitability during the management period, an employee retention credit received from the federal government, and bank refund to Aria Kentucky related to the Edgewater acquisition. In the prior year, other income represented management fees earned from managing the entity prior to acquisition.
Other expense
Other expense was $0 and $971 the nine months ended September 30, 2025 and 2024, respectively.
Interest income
Interest income was $3,691 and $1,864 for the nine months ended September 30, 2025 and 2024, an increase of $1,827 or 98.0%. The interest income is interest earned on positive cash balances during the current period.
Interest expense
Interest expense was $965,801 and $367,675 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $598,126 or 162.7%. Included in interest expense is interest of $301,826 related to the acquisition of the business of ERC. Interest expense on the existing business was $663,975 and $367,675 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $296,300 or 80.6%, primarily due to an increase in interest expense related to default interest on letter of credit funding, additional interest on Series R promissory notes which were entered into during the period March to May 2024, and interest on promissory notes issued to acquire the assets of the Boca Raton facility and the non-controlling shareholders interest in the prior year.
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Amortization of debt discount
Amortization of debt discount was $448,034 and $279,607 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $168,427 or 60.2%. Included in amortization of debt discount is amortization of $105,824 related to funding arrangements in Aria Kentucky. Amortization of debt discount in the existing business was $342,210 and $279,607, an increase of $62,603 or 22.4%. The amortization of debt discount relates primarily to short-term funding arrangements. In the current period the Company increased its funding arrangements to fund working capital requirements in both the Aria Kentucky operation and our Florida operations.
Foreign exchange movements
Foreign exchange movements were $(23,983) and $(3,510) for the nine months ended September 30, 2025 and 2024, 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 weakened against the Canadian Dollar during the current nine month period, resulting in an unrealized loss on Canadian denominated assets.
Net loss before income taxes
Net loss before income taxes was $1,153,700 and $1,840,192 for the nine months ended September 30, 2025 and 2024, respectively, a decrease of $686,492 or 37.3%. The decrease is primarily due to the increased revenue and other income, offset by an increase in operating expenses, interest expense and amortization of debt discount, all discussed in detail above.
Income Taxes
Income taxes was a credit of $39,210 and $0 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $39,210 or 100.0%. The taxation charge represents the deferred tax movement on the value of certain identifiable intangibles acquired from Edgewater.
Net loss
Net loss was $1,114,490 and $1,840,192 for the nine months ended September 30, 2025 and 2024, respectively, a decrease of $725,702 or 39.4%. The decrease was primarily due to the decrease in net loss before income taxes and the movement in income taxes, as discussed above.
Commitments and contingencies
The Company has commitments under operating and finance leases as follows:
Finance lease liability
The amount of future minimum lease payments under finance leases at September 30, 2025 is as follows:
| Amount | ||||
| Remainder of 2025 | $ | 2,457 | ||
| 2026 | 6,195 | |||
| 2027 | 1,707 | |||
| Total undiscounted minimum future lease payments | $ | 10,359 | ||
Operating lease liability
The amount of future minimum lease payments under operating leases are as follows:
| Amount | ||||
| Remainder of 2025 | $ | 716,344 | ||
| 2026 | 2,865,374 | |||
| 2027 | 2,728,600 | |||
| 2028 | 2,411,826 | |||
| 2029 | 2,411,826 | |||
| 2029 and thereafter | 20,065,782 | |||
| Total undiscounted minimum future lease payments | 31,199,752 | |||
The Company also has commitments under convertible loans and short-term loans. If the convertible loans, as disclosed in note 11, above are not converted they will need to be repaid.
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Liquidity and Capital Resources
Cash used in operating activities was $339,135 and $377,954 for the nine months ended September 30, 2025 and 2024, respectively, a decrease of $38,819. Cash used in operating activities from the acquisition of the business of ERC was $182,327. The cash used in operating activities from the existing business was $156,808 and $377,954 for the nine months ended September 30, 2025 and 2024, respectively, a decrease of $221,146.
The decrease is primarily due to the following:
| ● | A decrease in net loss of $725,702, as discussed under results of operations above. |
| ● | Offset by an increase in the movement of non-cash items of $654,139, primarily due to the increase in the movement of right of use asset of $642,241, the increase in the movement of depreciation and amortization of $259,669 the increase in the movement of amortization of debt discount of $168,427 and the increase in the movement of provision for credit losses of $103,012. |
| ● | Working capital movements decreased by $(1,341,022) primarily due to an increase in the movement in the investment in accounts receivable of $(1,553,776), a movement in the operating lease liabilities of $(592,473), offset by the movement in accounts payable and accrued liabilities of $607,867 and the movement in related party accruals of $162,990. |
Cash used in investing activities was $134,655 and $1,033,915 for the nine months ended September 30, 2025 and 2024, respectively. In the current period, we acquired the business of ERC for gross proceeds of $250,000 net of cash on acquisition of $299,492, resulting in a net cash generated on acquisition of $49,492. In the current period we invested in property and equipment of $158,716 and deposits related to properties leased from third parties and certain new utility deposits of $25,431. In the prior 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 prior period was $85,522.
Cash provided by financing activities was $330,141 and $1,415,265 for the nine months ended September 30, 2025 and 2024. During the current period, we raised $1,902,375 from funding arrangements and repaid $1,720,249, a net movement of $182,126, we received an additional bank loan of $300,000 and $310,000 from the issuance of two promissory notes to investors and a short term advance of $70,000, additionally we repaid $173,377 of short term notes. We repaid assumed liabilities of $159,085, promissory notes of $110,000, and received proceeds from related parties of $31,000 and repaid $1,200 during the current period. In the prior period the Company received $1,912,000 and repaid $(801,323) of short-term notes and received $542,000 and repaid $378,688 from funding arrangements, we repaid $40,000 of promissory notes, and in addition we received an advance of $250,000 from related parties and repaid $11,538.
Over the next twelve months we estimate that the Company will require approximately $1.5 million in working capital as it continues to develop its Florida and Kentucky operations. We are also exploring several other treatment center options and sources of patients throughout the country. The Company may have to raise equity or secure debt. There is no assurance that the Company will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on the Company’s financial condition.
Going Concern
Our unaudited condensed consolidated financial statements have been prepared in accordance with US GAAP applicable to a going concern, which assumes that we will be able to meet our obligations and continue our operations in the normal course of business. At September 30, 2025, we had a working capital deficiency of $12.2 million, and total liabilities in excess of assets in the amount of $8.6 million. We believe that current available resources will not be sufficient to fund our planned expenditures over the next 12 months. Accordingly, we will be dependent upon the raising of additional capital through placement of common shares, and/or debt financing in order to implement our business plan and generate sufficient revenue in excess of costs. If we raise additional capital through the issuance of equity securities or securities convertible into equity, stockholders will experience dilution, and such securities may have rights, preferences or privileges senior to those of the holders of common stock or convertible senior notes. If we raise additional funds by issuing debt, we may be subject to limitations on our operations, through debt covenants or other restrictions. If we obtain additional funds through arrangements with collaborators or strategic partners, we may be required to relinquish our rights to certain geographical areas, or techniques that it might otherwise seek to retain. There is no assurance that we will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on our financial condition. These 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.
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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 September 30, 2025 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 September 30, 2025. 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.
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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.
Item 6. Exhibits
* filed herewith
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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: December 3, 2025
By: /s/ Shawn E. Leon.
Name: Shawn E. Leon
Title: Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer)
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Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14 OR RULE
15d-14 OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Shawn E. Leon, certify that:
I have reviewed this Quarterly Report on Form 10-Q of Ethema Health Corporation;
| 1. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Dated: December 3, 2025
| /s/ Shawn E. Leon | |
Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Ethema Health Corporation, a Colorado corporation (the “Company”), on Form 10-Q for the period ended September 30, 2025 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Shawn E. Leon, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to Section 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) and 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Shawn E. Leon | |
Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer) | |
| December 3, 2025 |