ETHEMA HEALTH Corp 10-K for FY2025
ETHEMA HEALTH Corp (GRST)
About this 10-K
ETHEMA HEALTH Corp filed this 10-K on July 1, 2026, covering the fiscal year ended December 31, 2025 (FY2025).
Headline figures
Fiscal year ended December 31, 2025, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $18.76M
- up 211.9% from $6.02M a year earlier
- Net loss
- $2.18M
- compared with a net loss of $2.06M 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
For
the fiscal year 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)
(
(Registrant’s telephone number, including area code)
| Securities registered under Section 12(b) of the Exchange Act: | |
| Title of each class | Name of each exchange on which registered |
| None | N/A |
Securities registered under Section 12(g) of the Act:
(Title of class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
Indicate
by check mark whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. ☒
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive data
file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of issuer’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D.1(b).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☐ (Do not check if a smaller reporting company) | 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 ☐
The
aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2025, based on
a closing share price of $0.0004 was approximately $
As of June 29, 2026, the registrant had shares of its common stock, par value $0.01 per share, outstanding.
ETHEMA HEALTH CORPORATION
YEAR ENDED DECEMBER 31, 2025
TABLE OF CONTENTS
PART I
Special Note Regarding Forward-Looking Statements
Many of the matters discussed within this Annual Report contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) based on our current expectations and projections about future events. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “potential,” “continue,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” and similar expressions. These statements are based on our current beliefs, expectations, and assumptions and are subject to a number of risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those expressed, projected or implied in or by the forward-looking statements. Such risks and uncertainties include the risks noted under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but are also contained elsewhere. We do not undertake any obligation to update any forward looking statements. Unless the context requires otherwise, references to “we,” “us,” “our,” and “Ethema,” refer to Ethema Health Corporation and its subsidiaries.
Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all.
Item 1. Business.
Company History
Ethema Health Corporation (the “Company” or “Ethema”), a Colorado corporation was incorporated under the laws of the State of Colorado on April 1, 1993, and is the surviving company of a merger, effective February 1, 1995, between the Company and Nova Natural Resources Corporation, a Delaware corporation (“Nova Delaware”). The merger was effectuated solely for the purpose of changing the Company’s domicile from Delaware to Colorado. At all times prior to 2001, the Company was engaged in the oil and gas exploration business. Nova Delaware was the successor entity to Nova Petroleum Corporation, a Delaware corporation, and Power Resources Corporation, a Delaware corporation, which merged in 1986 (“the 1986 Merger”). Prior to the 1986 Merger, Nova Petroleum Corporation and Power Resources Corporation had operated since 1979 and 1972, respectively. In 2001, the Company entered into the electronics business and this business was active in 2001 and 2002, as part of the Torita Group. After 2002, the Company continued with various stages of development in this business until 2010.
On April 1, 2010, the Company changed its principal operations from development stage electronics to health care services. On March 29, 2010, the Company entered into a one-year consulting agreement with Greenstone Clinic Inc., a Canadian corporation (“Greenestone Clinic”), whereby Greenestone Clinic provided consulting services for the Company’s development and operation of medical clinics in the province of Ontario, Canada. Specifically, Greenestone Clinic provided medical and business expertise in the initial startup of private clinics and technical assistance to ensure that the clinics were in compliance with governmental policy and procedure requirements as well as any operational requirements. At the time of entering into this consulting agreement, Greenestone Clinic operated a clinic at the Muskoka property housing its addiction treatment clinic and provided endoscopy services. The Company started offering medical services in June 2010, offering various medical services, including endoscopy, cardiology and executive medicals, which services were subsequently sold.
During December 2016, the Company obtained a license to operate and provide addiction treatment health care services in Florida, USA. The company commenced operations under this license with effect from January 2017.
1
On February 14, 2017, the Company completed a series of transactions (referred to collectively as the “Restructuring Transactions”), including a Share Purchase Agreement (the “SPA”) whereby the Company acquired 100% of the stock of Cranberry Cove Holdings Ltd. (“CCH”) from Leon Developments Ltd. (“Leon Developments”), a company wholly owned by Shawn E. Leon, who is the President, CEO, and CFO of the Company, for an assignment to Leon Developments of CDN$659,918 owing to the Company and the issuance of 60,000,000 shares of the Company’s common stock valued at $2,184,000. CCH held the real estate on which the Company’s Greenstone Muskoka operated. The Company entered into an Asset Purchase Agreement (the “APA”) whereby the assets of Greenstone Muskoka were sold by Greenstone Muskoka, to Canadian Addiction Residential Treatment LP (the “Purchaser” or “CART”), for a total consideration of CDN$10,000,000. The Company also entered into a lease agreement whereby the Company leased the real estate to CART for an initial 5-year period with three 5-year renewal options.
On February 14, 2017, immediately after closing on the sale of the assets of Greenstone Muskoka, the Company closed on the acquisition of the business and real estate assets of Seastone Delray pursuant to certain real estate and asset purchase agreements through its wholly owned subsidiary, Addiction Recovery Institute of America, LLC (“ARIA”). The purchase price for the ARIA assets was US$6,070,000.
On April 4, 2017, the Company changed its Corporate name from Greenestone Healthcare Corporation to Ethema Health Corporation.
On November 2, 2017, the Company entered into an Agreement to purchase certain buildings in West Palm Beach, Florida, totaling approximately 80,000 square feet, on which the Company planned to operate a substance abuse treatment center. The purchase price of the Property was $20,530,000. The Company made a series of nonrefundable down payments totaling $2,940,546 in 2017 and 2018. On May 23, 2018, the Company converted the agreement to purchase the buildings from the Landlord into a real property lease agreement with a purchase option. The lease was for an initial 10 years and provided for two additional 10-year extensions. In June 2018, the Company moved its ARIA operations into the West Palm Beach properties and in September 2018 received a license to operate in-patient detoxification and residential treatment services. On December 20, 2019, the Company entered into an agreement with the landlord to terminate the lease agreement on January 31, 2020.
On April 2, 2019, the Company disposed of the real estate assets in ARIA located at 801 Andrews Avenue, Delray Beach for gross proceeds of $3,500,000, and on October 10, 2019, the Company transferred the remaining real estate asset located at 810 Andrews Avenue, Delray Beach, Florida to Leonite Capital, LLC, for net proceeds of $1,398,510, which proceeds were offset against the convertible loan owing to Leonite.
On June 30, 2020, the Company entered into an agreement (“the Stock Purchase Agreement”), whereby the Company agreed to acquire 51% of American Treatment Holdings, Inc. (“ATHI”) from The Q Global Trust (“Seller”) and Lawrence B Hawkins (“Hawkins”), which owned 100% of Evernia Health Services LLC. (“Evernia”), which operates drug rehabilitation facilities. The consideration for the acquisition was a loan to be provided by the Company to Evernia in the amount of $500,000. The Company has an option to acquire an additional 24% of ATHI for 100,000,000 shares of common stock and $50,000, on the condition that a probationary license was approved by the Florida Department of Family and Child Services, which was received on June 30, 2021, upon which the Company exercised its option to acquire the additional 24% of ATHI, resulting in a 75% ownership of 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.
On December 30, 2022, the company entered into two agreements whereby it sold two non-operating subsidiaries, Greenstone Muskoka and ARIA to the Company Chairman and CEO for no consideration, after Greenstone Muskoka forgave its intercompany receivable owing from the Company of $6,690,381 and the Company forgave its intercompany balance owing from ARIA of $9,605,315.
On June 30, 2023, the Company entered into an exchange agreement with Leonite Capital, LLC, whereby it exchanged 400,000 Series B shares with a value of $400,000 plus accrued dividends thereon of $61,184 for its entire shareholding in its property-owning subsidiary, CCH. The Series B shares were cancelled upon consummation of the transaction.
2
On October 3, 2022 the Company entered into a purchase and sale agreement with Evernia Station Limited Partnership for the purchase of 950 Evernia Street, West Palm Beach, Florida (“950”), the property in which it operates its treatment center, for gross proceeds of $5,500,000 (“Purchase Agreement”). The closing was originally scheduled for February 1, 2023, however through a series of 6 addendums to the Purchase Agreement requiring the payment of a total $180,000 in extension fees, the Closing was extended to August 3, 2023.
On May 4, 2023 the Company signed a Letter of Intent with Pontus Net Lease Advisors, LLC to sell 950 for $8,500,000 and lease the property to the Company for a term of twenty years with two ten-year extensions. On May 19, 2023, the Company signed a purchase and sale agreement with Pontus Net Lease Advisors to sell 950 for $8,500,000. On August 4, 2023, the Company completed both the purchase of 950 from Evernia Station Limited Partnership and the subsequent sale of 950 to Pontus Net Lease Advisors, LLC.
Simultaneously with the closing of the purchase and sale agreements, on August 4, 2023, the Company entered into a long-term lease for 950 with an initial term of twenty years, and two ten-year extension options. The lessor is Pontus EHC Palm Beach, LLC , a Delaware limited liability company and a portfolio company of Pontus Net Lease Advisors, LLC. The lease is absolutely net and the lease cost for the initial year is $748,000 paid monthly. The lease increases at a rate of 2.75% per year for a total term lease obligation of $19,655,717 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.
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 assumed 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.
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.
3
Corporate Structure
The Company consists of the following entities:
| Ethema Health Corporation (Parent company); |
Ethema is the publicly traded investment holding company, registered in Colorado, U.S. and owns the following entities:
| American Treatment Holdings, Inc, a US registered company (100% owned); |
ATHI owns 100% of the members’ interest of Evernia Health Center LLC. Ethema acquired 75% of ATHI effective July 1, 2021. On May 15, 2024, the Company entered into a Stock Purchase Agreement whereby it acquired the remaining 25% of ATHI from the minority stockholder.
| Evernia Health Center LLC, a US registered company; |
Ethema owns 100% of Evernia, who operates a treatment center in West Palm Beach Florida and is a wholly owned subsidiary of ATHI which was acquired by Ethema effective July 1, 2021. The Company has been actively involved in the operation of this treatment center since June 30, 2020.
| Delray Andrews RE, LLC (“DARE”), a US registered company (100% owned and dormant); |
DARE has remained dormant since inception.
| PB Billing LLC (“PB Bill”), a US registered company (100% owned); |
Ethema owns 100% of PB Billing, which performs the function of billing and collection for Evernia and ARIA Kentucky
| ARIA Kentucky LLC (“ARIA Kentucky”), a US registered company (100% owned); |
Ethema owns 100% of ARIA Kentucky. ARIA Kentucky acquired the business and certain assets and liabilities of Edgewater Recovery on January 9, 2025.
Employees
As of December 31, 2025, Ethema had 207 employees and 16 part-time contractors.
Marketing
The addiction treatment business in the USA operates as an insured health care service. Our marketing efforts are long-term processes of establishing relationships with relevant professionals and our treatment staff. We use industry specific conferences and functions to network with these professionals.
Through Evernia, the Company has an in-network relationship with several health care providers and the majority of the Company’s clients are sourced from these health care providers.
Competition
There are a significant number of treatment facilities in the United States, we compete with these clinics for patients who are typically covered by insured health care services.
4
Environmental Regulations
The Company is not currently subject to any pending administrative or judicial enforcement proceedings arising under environmental laws or regulations. Environmental laws and regulations may be adopted in the future which may have an impact upon the Company’s operations.
Item 1A. Risk Factors.
Not applicable because we are a smaller reporting company.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties.
Ethema Executive Offices
The Company’s executive offices are located at 950 Evernia Street, West Palm Beach, Florida, 33401.
West Palm Beach Treatment Operations
The Company, through its acquisition of ATHI, effectively acquired an initial 75% of the Evernia treatment facility located at 950 Evernia Street, West Palm Beach Florida. On May 15, 2024, the Company acquired the remaining 25% of ATHI. The Company has been actively involved in the operation of the Evernia treatment facility since June 2020.
On March 22, 2024, the Company through its subsidiary Evernia Health Center LLC, entered into a Definitive Agreement whereby the Company assumed the lease for suites 100, 101, 201, 202 and 203, located at 899 Meadows Road, Boca Raton, Florida (the “Boca Leased Premises”). The company began operating a treatment facility at the Boca Lease Premises during January 2025.
Kentucky Treatment Operations
The Company through the acquisition of the business, certain assets and liabilities of Edgewater Recovery Center, LLC, operates treatment centers in Morehead, Kentucky and Paducah, Kentucky through 11 leased properties, of which two are in Paducah and the remaining in Morehead.
Item 3. 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 4. Mine Safety Disclosures.
None.
5
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The Company’s common stock is quoted on the Over-the-counter Market (the “OTC PINK”) under the symbol “GRST”. The Company was sponsored by the market maker Wilson Davis & Co. from Salt Lake City, Utah, which filed a Form 15c2-11 application with the Financial Industry Regulatory Authority (“FINRA”) for the Company in 2011. This application was approved by FINRA in February 2012, and Wilson Davis & Co. first quoted the stock in March 2012.
From March 2012 to January 2020, our common stock had been traded on the OTCQB markets under the symbol “GRST”. In January 2020, the stock was downgraded to the OTC Pink Sheets market.
The last quoted stock price of our common stock on the OTC Pink on June 24, 2026 was $0.00001 per share. As of June 24, 2026, there were approximately 150 holders of record of our common stock.
Dividend Policy
We have not paid any cash dividends on our common stock to date, and we have no intention of paying cash dividends in the foreseeable future. Whether we declare and pay dividends is determined by our Board of Directors at their discretion, subject to certain limitations imposed under Colorado corporate law. The timing, amount and form of dividends, if any, will depend on, among other things, our results of operations, financial condition, cash requirements and other factors deemed relevant by our Board of Directors.
Equity Compensation Plan Information
See Item 11 - Executive Compensation for equity compensation plan information.
Recent Sales of Unregistered Securities
Other than as set forth below or as previously disclosed in our filings with the Securities and Exchange Commission, we did not sell any equity securities during the year ended December 31, 2025 in transactions that were not registered under the Securities Act.
Penny Stock
The U.S. Securities and Exchange Commission (the “SEC”) has adopted rules that regulate broker dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws. (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.
6
The broker dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer’s account.
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.
These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling our securities.
Issuer Purchases of Equity Securities
There were no issuer purchases of equity securities during the fiscal year ended December 31, 2025.
Item 6. Reserved
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with, and is qualified in its entirety by, our audited annual financial statements and the related notes thereto, each of which appear elsewhere in this Annual Report. This discussion contains certain forward-looking statements that involve risks and uncertainties in this Annual Report. Actual results could differ materially from those projected in the forward-looking statements. The Management Discussion and Analysis of Financial Condition and Results of Operations below is based upon only the financial performance of Ethema Health Corporation.
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our consolidated financial statements would be affected to the extent there are material differences between these estimates. This discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and accompanying notes to the consolidated financial statements for the year ended December 31, 2025.
Results of operations for the year ended December 31, 2025 and the year ended December 31, 2024.
Revenue
Revenue was $18,764,817 and $6,017,204 for the years ended December 31, 2025 and 2024, respectively, an increase of $12,747,613 or 211.9%. Revenues included $10,846,266 from the acquisition of the business of ERC. Revenues from existing business was $7,918,551 and $6,017,204 for the years ended December 31, 2025 and 2024, respectively, an increase of $1,901,347 or 31.6%. 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.
During the last quarter of 2025, a health care provider, which is a significant customer of ours reduced its reimbursement rates on services we provide to their patients by significant amounts, this resulted in some services we provide to this customer being no longer profitable. We have reacted to these reduced rates by ceasing to offer certain services to this customer’s patients and by restructuring our operations to reduce expenses in the first and second quarters of 2026.
7
Operating Expenses
| ● | General and administrative expenses were $3,934,900, and $1,550,799 for the years ended December 31, 2025 and 2024, respectively, an increase of $2,384,101 or 153.7%. General and administrative expenses include $2,042,981 from the acquisition of the business of ERC. General and administrative expenses from existing operations was $1,891,919 and $1,550,799 for the years ended December 31, 2025 and 2024, respectively, an increase of $341,120 or 22.0%. The increase is primarily due to an increase in client costs related to the additional client count at the Boca Cove facility and an increased patient count at the West Palm Beach 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 year compared to eight months from the prior year. |
| ● | Salaries and wages were $9,547,395 and $3,072,654 for the years ended December 31, 2025 and 2024, respectively, an increase of $6,474,741 or 210.7%. Salaries and wages includes $5,672,662 from the acquisition of the business of ERC. Salaries and wages from existing operations was $3,874,733 and $3,072,654 for the years ended December 31, 2025 and 2024, respectively, an increase of $802,079 or 26.1%. The increase is due to the acquisition of the Boca Raton facility, which was fully staffed up and operational beginning January 2025, and additional staff at our West Palm Beach facility to meet increased patient capacity. |
| ● | Rent expense was $3,013,306 and $1,304,127 for the years ended December 31, 2025 and 2024, respectively, an increase of $1,709,179 or 131.1%. Rent expense includes $1,501,163 from the acquisition of the business of ERC. Rental expense from existing operations was $1,512,143 and $1,304,127 for the years ended December 31, 2025 and 2024, respectively, an increase of $208,016 or 16.0%. The increase is primarily due to the additional rent incurred at the Boca Cove detox facility of $170,835 which was acquired in June 2024 and additional rental costs for an apartment in West Palm Beach during the current period. |
| ● | Professional fees were $1,597,072 and $955,801 for the years ended December 31, 2025 and 2024, respectively, an increase of $641,271 or 67.1%. Professional fees includes $645,582 from the acquisition of the business of ERC. Professional fees from existing operations was $951,490 and $955,801 for the years ended December 31, 2025 and 2024, respectively, a decrease of $4,311 or 0.5%. Professional fees include fees incurred for the acquisition of the Edgewater facility and in the prior period due to the acquisition of the 25% non-controlling shareholders interest in Evernia and the assets of the Boca Cove detox center. |
| ● | Management fees were $120,000 and $0 for the years ended December 31, 2025 and 2024, respectively, an increase of $120,000 or 100.0%. Due to an improvement in the Company’s performance, 50% of the monthly management fee of $20,000 was accrued during the current year. In the prior year the historical management fee of $20,000 per month was forfeited due to the operating loss realized. |
| ● | Depreciation and amortization expense was $812,279 and $466,952 for the years ended December 31, 2025 and 2024, respectively, an increase of $345,327 or 74.0%. Depreciation and amortization includes depreciation and amortization from the acquisition of the business of ERC amounting to $317,406. Depreciation and amortization expense from existing operations was $494,873 and $466,952 for the years ended December 31, 2025 and 2024, respectively, an increase of $27,921 or 6.0%. The increase is primarily due to additional depreciation incurred on assets acquired with the Boca Raton facility in June 2024. |
8
Operating loss
The operating loss was $260,135 and $1,333,129 for the years ended December 31, 2025 and 2024, respectively, a decrease in loss of $1,072,994 or 80.5%. The decrease is primarily 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 $66,107 and $110,000 for the years ended December 31, 2025 and 2024, respectively, a decrease of $43,893 or 39.9%. The decrease in other income was primarily related to management fees earned from Edgewater Recovery in the prior year. During the current year an employee retention credit was received from the federal government.
Other expense
Other expense was $0 and $1,160 for the years ended December 31, 2025 and 2024, respectively, a decrease of $1,160 or 100.0%.
Interest income
Interest income was $3,884 and $2,292 for the years ended December 31, 2025 and 2024 respectively. Interest income represents interest earned on positive bank balances.
Interest expense
Interest expense was $1,388,074 and $565,343 for the years ended December 31, 2025 and 2024, respectively, an increase of $822,731 or 145.5%. Included in interest expense is interest of $486,234 related to the acquisition of the business of ERC. Interest expense on the existing business was $901,840 and $565,343 for the years ended December 31, 2025 and 2024, respectively, an increase of $336,498 or 59.5%, primarily due 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 $616,072 and $416,120 for the years ended December 31, 2025 and 2024, respectively, an increase of $199,952 or 48.1%. Included in amortization of debt discount is amortization of $209,212 related to funding arrangements in ARIA Kentucky. Amortization of debt discount in the existing business was $406,860 and $416,120, a decrease of $9,260 or 2.2%. 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 $(36,023) and $37,523 for the years ended December 31, 2025 and 2024, respectively. Foreign exchange movements represents the realized exchange gains and (losses) on monetary assets and liabilities settled during the current year as well as mark to market unrealized gains and losses on monetary assets and liabilities reflected on the balance sheet and denominated in Canadian Dollars.
Net loss before income taxes
Net loss before income taxes was $2,230,313 and $2,165,937 for the years ended December 31, 2025 and 2024, respectively, an increase in loss of $64,376 or 3.0%. The increase is primarily due to an increase in operating expenses, interest expense and amortization of debt discount, offset by the increased revenue, all discussed in detail above.
9
Income taxes
Income taxes was a credit of $52,644 and $0 for the years ended December 31, 2025 and 2024, respectively an increase in credit of $52,644 or 100.0%. The taxation charge represents the deferred tax movement on the value of certain identifiable intangibles acquired from Edgewater. The Company made losses during the current year, increasing its Net Operating loss for tax purposes, a full valuation allowance has been provided against deferred tax assets.
Net loss
Net loss was $2,177,669 and $2,165,937 for the years ended December 31, 2025 and 2024, respectively, an increase in loss of $11,732 or 0.5%. The increase is due to the increase in loss before income taxes, offset by the deferred tax credit relating to the acquisition of intangibles assets on the acquisition of the assets of Edgewater.
Liquidity and Capital Resources
Cash used in operating activities was $0.03 million and $0.46 million for the years ended December 31, 2025 and 2024, respectively a decrease of $0.43 million or 93.5%. The decrease is primarily due to the following:
| ● | The increase in net loss of $0.01 million, as discussed above; |
| ● | The increase in non-cash movements of $1.8 million, primarily due to the increase in the movement on right-of-use assets, due to new leases entered into in ARIA Kentucky, the increase in the movement for provision for credit losses of $0.46 million on ARIA Kentucky receivables, the increase in the movement of depreciation and amortization of $0.35 million due to the ARIA Kentucky acquisition of property and equipment assets and intangibles, and the increase in the movement of amortization of debt discount of $0.2 million due to the increased level of debt subject to discount borrowed during the current year; |
| ● | The decrease in working capital movements of $(1.39) million, primarily due to an increase in the movement of accounts receivable of $1.1 million, due to the acquisition of the business of Edgewater and the increase in receivables balances in existing operations, a decrease in the movement in related party balances of $(0.28) million as some of the ARIA Kentucky acquisition liabilities were repaid, a decrease in the movement of operating lease liabilities of $(0.70) million, primarily related to new leases entered into in ARIA Kentucky and the increase in the liability for the West Palm Beach facility, related to rent smoothing adjustments, offset by an increase in the movement of accounts payable and accrued liability balances of $0.67 million, primarily due to interest accruals during the current year. |
Cash used in investing activities was $0.25 million and $1.0 million for the years ended December 31, 2025 and 2024, respectively. In the current year, we acquired the business of ERC for gross proceeds of $0.25 million net of cash on acquisition of $0.3 million, resulting in a net cash generated on acquisition of $0.05 million, we also invested $0.28 million in property and equipment, including leasehold improvements to leased properties and purchases of fittings and fixtures to increase the capacity of our facilities. In the prior period we paid $0.63 million for the acquisition of the minority interest in ATHI, a further $0.24 million for the acquisition of the assets of Boca Cove Detox and a further $0.08 million for the assumption of the real property deposit on the Boca Cove facility.
Cash provided by financing activities was $0.08 million and $1.7 million for the years ended December 31, 2025 and 2024, respectively. During the current period, we raised $2.64 million from funding arrangements and repaid $2.56 million, a net movement of $0.08 million, we received an additional bank loan of $0.3 million and issued two promissory notes for an additional $0.3 million, additionally we repaid $0.17 million of short-term notes and $0.12 million in principal on bank loans. We repaid assumed liabilities of $0.16 million and promissory notes of $0.14 million. In the prior period the Company received $1.9 million and repaid $0.8 million of short-term notes and received $0.69 million and repaid $0.59 million from funding arrangements, we repaid $0.07 million of promissory notes, and in addition we received an advance of $0.25 million from related parties and $0.2 million from subscribers for common and preferred stock.
Over the next twelve months we estimate that the Company will require approximately $3.9 million in funding to repay its obligations other than convertible notes and promissory notes. We will need funding for working capital as we continue to seek additional opportunities for addiction treatment in the US markets. There is no assurance that the Company will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on the Company’s financial condition. In the opinion of management, the Company’s liquidity risk is assessed as high.
10
Going Concern
The accompanying 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. For the year ended December 31, 2025, we had a negative cash flow from operating activities of $0.03 million. As of December 31, 2025, we had an accumulated deficit of $46.6 million, working capital deficiency of $13.8 million and total liabilities in excess of total assets of $9.6 million. These matters raise substantial doubt about our ability to continue as a going concern.
Management believes 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.
Based on the uncertainties described above, we believe our business plan does not alleviate the existence of substantial doubt about our ability to continue as a going concern within one year from the date of the issuance of these consolidated financial statements. The accompanying 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.
Commitments and contingencies
The Company has commitments under operating and finance leases as follows:
The amount of future minimum lease payments under finance leases at December 31, 2025 is as follows:
| Amount | ||||
| 2026 | $ | 6,195 | ||
| 2027 | 1,707 | |||
| Total undiscounted minimum future finance lease payments | $ | 7,902 | ||
The amount of future minimum lease payments under operating leases are as follows:
| Amount | ||||
| 2026 | $ | 2,854,105 | ||
| 2027 | 2,717,331 | |||
| 2028 | 2,400,557 | |||
| 2029 | 2,400,557 | |||
| 2030 | 2,400,557 | |||
| 2031 and thereafter | 16,630,172 | |||
| Total undiscounted minimum future operating lease payments | $ | 29,403,279 | ||
The Company also has commitments under bank loans, assumed liabilities, promissory notes, convertible loans and short-term loans, as disclosed in the financial statements.
Critical accounting policies
Revenue recognition
We recognize revenue in terms of ASC 606 which requires us to exercise more judgment and recognize revenue using a five-step process as described under our accounting policies in note 2 to the consolidated financial statements.
We derive substantially all of our revenue from payors that receive discounts from established billing rates. The various managed care contracts under which these discounts must be calculated are complex, subject to interpretation and adjustment, and may include multiple reimbursement mechanisms for different types of services provided in the Company’s inpatient facilities and cost settlement provisions. Management estimates the transaction price on a payor-specific basis given its interpretation of the applicable regulations or contract terms. The services authorized and provided and related reimbursement are often subject to interpretation that could result in payments that differ from the Company’s estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular review and assessment of the estimation process by management.
Settlements with third-party payors are estimated and recorded in the period in which the related services are rendered and are adjusted in future periods as final settlements are determined. In the opinion of management, adequate provision has been made for any adjustments and final settlements.
11
Allowance for credit losses
In conjunction with Revenue recognition, we recognize revenue based on historical collections received from health care providers, recognizing only a percentage of revenues actually billed. Effectively recognizing revenue net of any expected billing differentials. Based on our collection experience, the percentage of revenue recognized is adjusted on a periodic basis, thereby taking into account expected credit losses in the revenue recognition process. The revenue we recognize is already net of expected credit losses.
Leases
We account for leases in terms of ASC 842. In terms of ASC 842, the Company assesses whether any asset based leases entered into for periods longer than twelve months meet the definition of financial leases or 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 we will not acquire the asset at the end of the lease term are classified as operating leases, our right to use the asset is reflected as a non-current right of use asset with a corresponding 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.
Long Lived Assets
The Company evaluates the carrying value of its long-lived assets for impairment by comparing the expected undiscounted future cash flows of the assets to the net book value of the assets when events or circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. If the expected undiscounted future cash flows are less than the net book value of the assets, the excess of the net book value over the estimated fair value will be charged to earnings.
Fair value is based upon discounted cash flows of the assets at a rate deemed reasonable for the type of asset and prevailing market conditions, appraisals, and, if appropriate, current estimated net sales proceeds from pending offers.
Critical Accounting Estimates
Preparation of our consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of certain assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities. Our estimates are based on our historical experience, information received from third parties and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Significant accounting policies are fundamental to understanding our financial condition and results as they require the use of estimates and assumptions which affect the financial statements and accompanying notes. See Note 2 - Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report for further information.
The Critical accounting policies that involved significant estimation include the following:
Business combination
In Terms of ASC 805, the Company allocated the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed for the acquisition of Edgewater Recovery Center on January 9, 2025 for gross proceeds of $250,000 and bank loan proceeds and related party proceeds, paid directly to settle the sellers debt in connection with the acquisition of $4,250,000 and $66,741, respectively. The fair value of the intangible assets acquired was estimated at $2,996,000 and the excess of the fair value of purchase consideration over the fair values of the identified assets and liabilities, recorded as goodwill amounted to $3,427,847.
Revenue recognition
Management constantly monitors the level of billings and collections on those billings and makes an estimation of the percentage of billings that will ultimately be recorded as revenue. The various managed care contracts under which these discounts must be calculated are complex, subject to interpretation and adjustment, and may include multiple reimbursement mechanisms for different types of services provided in the Company’s inpatient facilities and cost settlement provisions. Management estimates the transaction price on a payor-specific basis given its interpretation of the applicable regulations or contract terms. The services authorized and provided and related reimbursement are often subject to interpretation that could result in payments that differ from the Company’s estimates.
Since we already make adjustments for expected collections we are constantly taking into account any expected credit losses.
Leases
On August 4, 2023, we entered into an acquisition and immediate disposal transaction with two unrelated third parties for the building which we currently operate our West Palm Beach treatment facility.
Simultaneously with the acquisition and disposal, on August 4, 2023, we entered into a long-term lease for 950 Evernia Street, West Palm Beach, Florida with an initial term of twenty years, and two ten-year extension options. The lease is absolutely net and the lease cost for the initial year is $748,000 paid monthly. The lease increases at a rate of 2.75% per year for a total term lease obligation of $19,655,717 over the initial twenty-year term. Due to the initial lease term of twenty years, we are not certain that the extension periods will be exercised at this point in time and accordingly, these have been excluded from the present value of the minimum future lease payments.
12
To determine the present value of minimum future lease payments for operating leases at August 4, 2023, we were required to estimate a rate of interest that we would have to pay to borrow on a collateralized basis over a similar term in a similar economic environment (the "incremental borrowing rate" or "IBR"). We determined the appropriate IBR by identifying a reference rate and making adjustments that take into consideration financing options and certain lease-specific circumstances. For the reference rate, the Company used the Fannie Mae, in excess of $3,000,000 rate based on an 80% value to loan ratio, averaging the 15- and 30-year indicative rates, resulting in a rate of 7.70%. We determined that 7.70% per annum was an appropriate incremental borrowing rate to apply to its real estate operating lease.
The present value of the future minimum lease payments was valued at $9,333,953 on August 4, 2023.
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.
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.
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 reasonably certain 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 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.
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 reasonably certain 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.
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.
13
Effective October 1, 2025, the Company entered into rental abatement agreements with its related party, ERC Investments, LLC, whereby rental on the 425 Clinic Drive and the 1111 US 60 W properties was abated for the three months ended December 31, 2025 by $60,000 and $90,000, respectively. This abatement was evaluated under ASC 842 and determined to be a lease modification. The Company re-evaluated the IBR rate at the date of modification and determined that the rate was 7.8% which was used to calculate the present value of future minimum lease payments of the 425 Clinic Drive and 1111 US 60 W properties at $5,409,062, a net reduction of $165,975, on the date of modification. The modification also resulted in a decrease in the rental smoothing liability of $45,761 on the date of modification, and an increase in the smoothing expense of $147,183 over the three-month period ended December 31, 2025, a net impact of $101,422 increase in rental smoothing liability for the year ended December 31, 2025.
The details of the related party property leases are as follows:
| Description | Base Rental (annual) | |||
| 425 Clinic Drive, Morehead, Kentucky* | $ | 312,000 | ||
| 445 Clinic Drive, Morehead, Kentucky | 120,000 | |||
| 1111 US 60 W, Morehead, Kentucky* | 480,000 | |||
| 2180 US 60 W, Morehead, Kentucky | 36,000 | |||
| 721 White Street, Morehead Kentucky | 30,000 | |||
| 214 Jackson Drive, Morehead, Kentucky | 30,000 | |||
| 1135 Rodburn Hollow Drive, Morehead, Kentucky | 30,000 | |||
| 417 South 4th Street, Paducah, Kentucky | 96,000 | |||
| 425 South 6th Street, Paducah, Kentucky | 72,000 | |||
| Total | $ | 1,206,000 | ||
* During 2025, a once off rental abatement of $60,000 and $90,000 was granted to ARIA Kentucky by ERC Investments on the 425 Clinic Drive property and the 1111 US60W property, respectively.
Long-lived assets
We have significant long-lived assets, including property and equipment, intangible assets, right-of-use assets and deposits. The Company evaluates the carrying value of its long-lived assets for impairment by comparing management’s estimates of undiscounted future cash flows of the assets to the net book value of the assets when events or circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. This requires significant estimation of future revenue streams, based on management’s understanding of the business which may not be accurate and may require re-estimation at a future date. If the expected undiscounted future cash flows are less than the net book value of the assets, the excess of the net book value over the estimated fair value will be charged to earnings.
Fair value is based upon discounted cash flows of the assets at a rate deemed by management to be reasonable for the type of asset and prevailing market conditions, appraisals, and, if appropriate, current estimated net sales proceeds from pending offers.
14
Item 8. Financial Statements and Supplementary Data.
ETHEMA HEALTH CORPORATION
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in US$ unless otherwise indicated)
| PAGE | |
| Report of Independent Registered Public
Accounting Firm (PCAOB ID |
F-1 |
| Consolidated Balance Sheets as of December 31, 2025 and 2024 | F-2 |
| Consolidated Statements of Operations for the years ended December 31, 2025 and 2024 | F-3 |
| Consolidated Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2025 and 2024 | F-4 |
| Consolidated Statements of Cash Flows for the years ended December 31, 2025 and 2024 | F-5 |
| Notes to the Consolidated Financial Statements | F-6 |
15
 |
Florida Office:
2424 N. Federal Highway Suite 257 Boca Raton, FL 33431 561.405.9440 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Ethema Health Corporation and subsidiaries
West Palm Beach, FL 33401
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Ethema Health Corporation and subsidiaries (collectively, the “Company”) as of December 31, 2025 and 2024, and the related consolidated statements of operations, stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2025, and the related notes (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt About the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has suffered recurring losses from operations, has generated negative cash flows from operating activities, and has a working capital deficiency and accumulated deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans to address these matters are described in Note 3. The consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty. Our opinion is not modified with respect to that matter.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or are required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill and Identifiable Intangible Assets - Acquisition of Edgewater Recovery Centers, LLC
Critical Audit Matter Description
As described in Notes 4, 8, and 9 to the consolidated financial statements, the Company completed the acquisition of the addiction treatment operations of Edgewater Recovery Centers, LLC ("ERC") on January 9, 2025, accounted for as a business combination under ASC 805. As part of the final purchase price allocation, the Company recorded goodwill of $3,427,847, customer relationships of $2,944,000, and non-compete agreements of $52,000. An assembled workforce of $1,358,000 was valued and included within goodwill. The final purchase price allocation as of December 31, 2025 reflected a net decrease to goodwill of approximately $147,000 compared to the provisional allocation; the fair values of the identified intangible assets were not affected.
We identified the accounting for the ERC acquisition as a critical audit matter because auditing management's determination of the fair value of the acquired identifiable intangible assets involved a high degree of auditor judgment and subjectivity. The valuation required management to make significant assumptions regarding future revenues, projected cash flows, customer attrition rates, and discount rates. Auditing these assumptions required specialized knowledge and significant auditor judgment in evaluating the reasonableness of management's estimates.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the accounting for the ERC acquisition included, among others:
| · | Evaluated management's conclusion that the transaction constitutes a business combination under ASC 805, including assessment of acquired inputs, processes, and outputs. |
| · | Tested management's identification of the acquired assets and assumed liabilities included in the purchase price allocation. |
| · | Evaluated the reasonableness of the valuation methodologies and significant assumptions used by management, including projected revenues, projected cash flows, customer attrition rates, and discount rates, utilizing professionals with specialized skill and knowledge to assist in evaluating the valuation methodologies and significant assumptions used by management. |
| · | Tested the completeness and accuracy of the underlying data used in the valuation analyses, the mathematical accuracy of the valuation models and purchase price allocation, and agreed the allocated amounts to the consolidated financial statements. |
| · | Reviewed management's measurement period adjustments and confirmed that revisions did not affect the fair value conclusions for customer relationships or non-compete agreements. |
/s/
We have served as the Company’s auditor since 2023.
June 30, 2026
PCAOB ID Number 587
New York, NY Washington DC Mumbai & Pune, India Boca Raton, FL
Houston, TX San Francisco, CA Las Vegas, NV Beijing, China Athens, Greece
Member: ANTEA International with affiliated offices worldwide
F-1
ETHEMA HEALTH CORPORATION
CONSOLIDATED BALANCE SHEETS
| December 31, 2025 | December 31, 2024 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Non-current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Right of use assets | ||||||||
| Right of use assets – Related Parties | ||||||||
| 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 parties | ||||||||
| Finance lease liability | ||||||||
| Related party payables | ||||||||
| Stock subscription liability | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities | ||||||||
| Bank loans | ||||||||
| Note payable – Related Parties | ||||||||
| Government assistance loans | ||||||||
| Operating lease liability | ||||||||
| Operating lease liability – Related parties | ||||||||
| Finance lease liability | ||||||||
| Deferred tax liability | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders’ deficit | ||||||||
| Preferred stock - Series A; $ par value, authorized, shares issued and outstanding as of December 31, 2025 and 2024, respectively. | ||||||||
| Common stock - $ par value, shares authorized; and shares issued and outstanding as of December 31, 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 consolidated financial statements
F-2
ETHEMA HEALTH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
| Year ended December 31, 2025 | Year ended December 31, 2024 | |||||||
| Revenues | $ | $ | ||||||
| Operating expenses | ||||||||
| General and administrative | ||||||||
| Rent expense | ||||||||
| Management fees | ||||||||
| Professional fees | ||||||||
| Salaries and wages | ||||||||
| Depreciation and amortization | ||||||||
| Total operating expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other (expense) income | ||||||||
| Other income | ||||||||
| Other expense | ( | ) | ||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Amortization of debt discount | ( | ) | ( | ) | ||||
| Foreign exchange movements | ( | ) | ||||||
| Net loss before income taxes | ( | ) | ( | ) | ||||
| Income taxes | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Net loss attributable to non-controlling stockholders interest | ||||||||
| Net loss available to common stockholders of Ethema Health Corporation | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted loss per common share | $ | ) | $ | ) | ||||
| Weighted average common shares outstanding – Basic and diluted | ||||||||
The accompanying notes are an integral part of the consolidated financial statements
F-3
ETHEMA HEALTH CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
| Series A Preferred | Common | Additional Paid | Discount | Accumulated | Non- controlling stockholders | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | in Capital | to par value | Deficit | Interest | Total | ||||||||||||||||||||||||||||
| Balance as of December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||
| Acquisition of minority stockholders interest | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Conversion of related party payable to Series A preferred shares | — | |||||||||||||||||||||||||||||||||||
| Subscription for Series A preferred A shares | — | |||||||||||||||||||||||||||||||||||
| Conversion of related party payables to common shares | — | ( | ) | |||||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance as of December 31, 2024 | 4,765,000 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||
| Cancellation of common stock | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance as of December 31, 2025 | 4,765,000 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements
F-4
ETHEMA HEALTH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31, 2025 | Year ended December 31, 2024 | |||||||
| Operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustment to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of debt discount | ||||||||
| Provision for credit losses | ||||||||
| Amortization of right of use asset | ||||||||
| Deferred taxation movement | ( | ) | ||||||
| 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 | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Acquisition of property | ( | ) | ||||||
| Acquisition of minority stockholders interest | ( | ) | ||||||
| Investment in deposits | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities | ||||||||
| Repayment of assumed liability | ( | ) | ||||||
| Proceeds from bank loans | ||||||||
| Repayment of bank loans | ( | ) | ||||||
| Proceeds from short term notes | ||||||||
| Repayment of short-term notes | ( | ) | ( | ) | ||||
| Repayment of promissory notes | ( | ) | ( | ) | ||||
| Proceeds from funding arrangements | ||||||||
| Repayment of funding arrangements | ( | ) | ( | ) | ||||
| Proceeds from advances – related party | ||||||||
| Repayment of advances – related party | ( | ) | ||||||
| Repayment of government assistance loans | ( | ) | ||||||
| Repayment of finance leases | ( | ) | ( | ) | ||||
| Proceeds from stock subscription liability | ||||||||
| Proceeds from Series A preferred subscriptions | ||||||||
| (Repayment) proceeds of related party notes | ||||||||
| 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 parties | $ | $ | ||||||
| Present value of operating lease liability and operating lease right of use assets recognized on lease modification – Related parties | $ | ( | ) | $ | ||||
| Common shares cancelled | $ | $ | ||||||
| Bank loan proceeds applied directly to sellers’ debt in connection with acquisition | $ | $ | ||||||
| Related party loan proceeds applied directly to sellers’ debt in connection with acquisition | $ | $ | ||||||
| Promissory note issued to acquire minority stockholders interest | $ | $ | ||||||
| Exchange of Series N convertible notes for Series R promissory notes | $ | $ | ||||||
| Conversion of related party payables to common shares | $ | $ | ||||||
| Conversion of related party payable to Series A preferred stock | $ | $ | ||||||
| Present value of operating lease liability and operating lease right-of-use asset recognized in connection with lease commencement | $ | $ | ||||||
The accompanying notes are an integral part of the consolidated financial statements
F-5
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 1. | Nature of business |
Since 2010, the Company has operated addiction treatment centers. Initially the Company operated an addiction treatment center in Ontario Canada under its Greenestone Muskoka clinic, which was sold on February 14, 2017. Simultaneously with this sale the Company purchased buildings and operated an addiction treatment center in Delray Beach Florida under its Addiction recovery Institute of America subsidiary with a license obtained in December 2016, initially though owned properties in Delray Beach and subsequently though leased properties in West Palm Beach, Florida. Since June 30, 2020, the Company has been actively involved in the management of a treatment center operated by Evernia in West Palm Beach Florida. On July 1, 2021, the Company closed on the acquisition of 75% of ATHI, which owns 100% of Evernia, once the probationary approval of a license was obtained from the Department of Children and Family Services of Florida.
The Company sold its real estate on which its Greenstone Muskoka clinic operated during 2023.
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.
F-6
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 2. | Summary of significant accounting policies |
Financial Reporting
The Company prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”).
Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company’s system of internal accounting control is designed to assure, among other items, that i) recorded transactions are valid; ii) valid transactions are recorded; and iii) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the Company for the respective periods being presented.
| a) | Use of Estimates |
The preparation of 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 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 and goodwill, the fair value of long-lived assets and goodwill, including impairment analysis, 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 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.
In Terms of ASC 805, Business Combinations, the Company allocated the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed for the acquisition of Edgewater Recovery Center on January 9, 2025 for gross proceeds of $250,000 and bank loan proceeds and related party proceeds, paid directly to settle the sellers debt in connection with the acquisition of $4,250,000 and $66,741, respectively. The fair value of the intangible assets acquired was estimated at $2,996,000 and the excess of the fair value of purchase consideration over the fair values of the identified assets and liabilities, recorded as goodwill amounted to $3,427,847.
| b) | Principals of consolidation and foreign currency translation |
The accompanying consolidated financial statements include the accounts of the Company and all of its subsidiaries. All intercompany transactions and balances have been eliminated on consolidation.
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.
| 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 December 31, 2025 and 2024.
The
Company primarily places cash balances in the USA with high-credit quality financial institutions located in the United States which
are insured by the Federal Deposit Insurance Corporation up to a limit of $
F-7
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 2. | Summary of significant accounting policies (continued) |
| 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 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 health care 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.
| 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.
F-8
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 2. | Summary of significant accounting policies (continued) |
| 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.
| 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, taxes payable, convertible notes payable, promissory notes, receivables funding, loans payable and related party notes.
Financial assets measured at cost are tested for impairment when there are indicators of impairment. The amount of the write-down is recognized in net income. The previously recognized impairment loss may be reversed to the extent of the improvement, directly or by adjusting the allowance account, provided it is no greater than the amount that would have been reported at the date of the reversal had the impairment not been recognized previously. The amount of the reversal is recognized in net income. The Company recognizes its transaction costs in net income in the period incurred. However, financial instruments that will not be subsequently measured at fair value are adjusted by the transaction costs that are directly attributable to their origination, issuance or assumption.
FASB ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
| ● | Level 1. Observable inputs such as quoted prices in active markets; | |
| ● | Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and | |
| ● | Level 3. Unobservable inputs in which there is little or no market data, which requires the reporting entity to develop its own assumptions. |
The Company measures its convertible debt and 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 and Comprehensive Loss.
| 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.
F-9
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 2. | Summary of significant accounting policies (continued) |
| 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 consolidated statements of operations and comprehensive loss.
As our performance obligations relate to contracts with a duration of one year or less, the Company elected the optional exemption in ASC 606-10-50-14(a). Therefore, the Company is not required to disclose the transaction price for the remaining performance obligations at the end of the reporting period or when the Company expects to recognize the revenue. The Company has minimal unsatisfied performance obligations at the end of the reporting period as our patients typically are under no obligation to remain admitted in our facilities.
The Company receives payments from the following sources for services rendered in our U.S. Facility: (i) commercial insurers; and (ii) individual patients and clients. As the period between the time of service and time of payment is typically one year or less, the Company elected the practical expedient under ASC 606-10-32-18 and does not adjust for the effects of a significant financing component.
The Company derives a significant portion of its revenue from 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, net of credit losses of $460,760 and
$0, 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 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.
F-10
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 2. | Summary of significant accounting policies (continued) |
| q) | Net (loss) income per Share |
Basic net (loss) income per share is computed on the basis of the weighted average number of common stock outstanding during the year.
Diluted net (loss) income per share is computed on the basis of the weighted average number of common stock and common stock equivalents outstanding. Dilutive securities having an anti-dilutive effect on diluted net (loss) income per share are excluded from the calculation.
Dilution is computed by applying the treasury stock method for options and warrants. Under this method, “in-the money” options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Dilution is computed by applying the if-converted method for convertible preferred stocks. Under this method, convertible preferred stock is assumed to be converted at the beginning of the period (or at the time of issuance, if later), and preferred dividends (if any) will be added back to determine income applicable to common stock. The shares issuable upon conversion will be added to weighted average number of common stock outstanding. Conversion will be assumed only if it reduces earnings per share (or increases loss per share).
| 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 consolidated statements of operations for the year ended December 31, 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, December 31, 2025 and 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 US.
| 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 $13.8 million, and an accumulated deficit of approximately $46.6 million. The Company is dependent upon the raising of additional capital in order to implement its business plan. There is no assurance that the Company will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on the Company’s financial condition.
| 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, other price risk and concentration risk. The Company is exposed to interest rate risk, currency risk and concentration 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 convertible debt, promissory notes, short term loans, receivables funding third party loans and government assistance loans as of December 31, 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.
F-11
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 2. | Summary of significant accounting policies (continued) |
| s) | Financial instruments Risks (continued) |
| iii. | Market risk (continued) |
| 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 years ended December 31, 2025 and 2024, the Company derived approximately 100% of its in-patient revenues from a group of commercial health care insurers. Any adverse change in policy towards the treatment of substance abuse patients adopted by a majority of the group of commercial health care insurers will have a significant impact on the Company.
| t) | Recent accounting pronouncements |
The Financial Accounting Standards Board (“FASB”) issued additional updates during the year ended December 31, 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 consolidated financial statements upon adoption.
| u) | Comprehensive income (loss) |
Comprehensive income 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.
F-12
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 3. | Going concern |
The
accompanying 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. For the year ended December 31, 2025, the Company incurred a net
loss 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 consolidated financial statements. The accompanying 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 $
F-13
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 4. | Acquisition of the business of Edgewater Recovery Center (continued) |
The final allocation of assets acquired and liabilities assumed as of December 31, 2025, 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 | ||||
| Non-current assets | ||||
| Property and equipment | ||||
| Customer relationships | ||||
| Non-compete agreements | ||||
| Goodwill | ||||
| Deposits | ||||
| Total Assets acquired | $ | |||
| Current liabilities | ||||
| Accrued liabilities | $ | |||
| Related party payables | ||||
| Non-current liabilities | ||||
| Bank loans | ||||
| Note payable – related party | ||||
| Assumed liability | ||||
| Deferred taxation | ||||
| Total liabilities assumed | $ | |||
| Net assets acquired | $ | |||
Goodwill includes the value of an assembled workforce of $1,358,000. The assembled workforce produced operational synergies for the Company in the Kentucky addiction treatment market. The assembled workforce does not meet the criteria for recognition as a separate identifiable intangible asset.
The adjustments made from the provisional purchase price allocation to the final purchase price allocation during the measurement period (January 9, 2025 to January 9, 2026) were; (i) a reduction in accounts receivable acquired of $63,491; (ii) an increase in other current assets of $27,630 related to short-term investments; and (iii) a reduction in related party payables of $183,409, resulting in a net decrease in goodwill initially measured at $3,573,396 and finally recognized as $3,427,847, a reduction of $147,549.
The amount of pro forma revenue and earnings which would have been included in the Company’s consolidated statement of operations for the year ended December 31, 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 December 31, 2025 | $ | $ | ||||||
| 2025 supplemental pro-forma from January 1, 2025 to December 31, 2025 | $ | $ | ( |
) | ||||
| 2024 supplemental pro-forma from January 1, 2024 to December 31, 2024 | $ | $ | ( |
) | ||||
The
supplemental pro forma information for the year ended December 31, 2025 was adjusted to exclude (i) non-recurring legal fees of $
The
supplemental pro forma information for the year ended December 31, 2024 was adjusted to exclude (i) $
F-14
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 5. | 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.
The acquisition of the minority stockholders interest was accounted for in terms of ASC 810, Consolidation.
| Schedule of acquisition | ||||
| Amount | ||||
| Purchase price | ||||
| Cash | $ | |||
| Promissory note | ||||
| Total | ||||
| Allocation of purchase price | ||||
| Minority stockholders interest | ||||
| Additional paid in capital | ( | ) | ||
| Total | $ | ( | ) | |
| 6. | Acquisition of Boca Cove Detox |
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.
| Schedule of acquisition of boca cove detox | ||||
| Amount | ||||
| Purchase price | ||||
| Cash | $ | |||
| Allocation of purchase price | ||||
| Property and equipment | ||||
| Deposit assumed on leased premises | ||||
| Total | $ | |||
| 7. | Property and equipment |
Acquisition of Boca Cove Detox
On May 1, 2024 the Company, through its subsidiary Evernia Health Center LLC, entered into a Definitive Agreement whereby the Company would assume the lease for suites 100,101, 201, 202 and 203 located at 899 Meadows Road, Boca Raton, Florida (the “Leased Premises”) and the furniture, fixtures and equipment located therein, upon the assignment of the lease from the property owner. The lease was assigned on June 10, 2024 and the Company entered into a Bill of Sale to give effect to the Definitive Agreement. The purchase price of the assets was $240,000.
Property and equipment consists of the following:
| Schedule of property and equipment | |||||||||||||||||
| December
31, 2025 |
December 31, 2024 | ||||||||||||||||
Useful lives |
Cost | Accumulated depreciation | Net book value | Net book value | |||||||||||||
| Leasehold improvements | $ | $ | ( |
) | $ | $ | |||||||||||
| Furniture and fittings | ( |
) | |||||||||||||||
| Vehicles | ( |
) | |||||||||||||||
| Computer equipment | ( |
) | |||||||||||||||
| Capital work in progress | — | — | |||||||||||||||
| $ | $ | ( |
) | $ | $ | ||||||||||||
Depreciation
expense for the year ended December 31, 2025 and 2024 was $
F-15
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 8. | 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 $
Health care provider license consists of the Company’s estimate of the fair value of intangibles acquired with the acquisition of ATHI. The Company allocated the excess over the tangible assets acquired, less the liabilities assumed to the contract provided to the Company by a health care service provider.
Intangible assets consist of the following:
| Schedule of intangible assets | ||||||||||||||||||
| Useful lives |
December
31, 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 $560,456 and $357,981 in amortization expense for finite-lived assets for the years ended December 31, 2025 and 2024.
Estimated future amortization expense is as follows:
| Schedule of estimated future amortization | |||||
| Amount | |||||
| 2026 | $ | ||||
| 2027 | |||||
| 2028 | |||||
| 2029 | |||||
| 2030 | |||||
| 2031 and thereafter | |||||
| Total estimated amortization expense | $ |
| 9. | 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 December 31, 2025 | $ | |||
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.
F-16
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 10. | 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 $19,655,717 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.
F-17
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 10. | 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 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 6 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 3 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.
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.
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.
Effective October 1, 2025, the Company enter into rental abatement agreements with its related party, ERC Investments, LLC, whereby cash rental on the 425 Clinic Drive and the 1111 US 60 W properties was abated for the three months ended December 31, 2025 by $60,000 and $90,000, respectively. This abatement was evaluated under ASC 842 and determined to be a lease modification. The Company re-evaluated the IBR rate at the date of modification and determined that the rate was 7.8% which was used to calculate the present value of future minimal lease payments of the 425 Clinic Drive and 1111 US 60 W properties at $5,409,062, a net reduction of $165,975, on the date of modification. The modification also resulted in a decrease in the rental smoothing liability of $45,761 on the date of modification, and an increase in the smoothing expense of $147,183 over the three-month period ended December 31, 2025, a net impact of $101,422 increase in rental smoothing liability for the year ended December 31, 2025. The net impact of the rental abatement on the statement of operations was a credit of $48,578.
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 | $ | |||
* During 2025, a once off rental abatement of $60,000 and $90,000 was granted to ARIA Kentucky by ERC Investments on the 425 Clinic Drive property and the 1111 US60W property, respectively.
Right of use assets are included in the consolidated balance sheet are as follows:
| Schedule of right of use assets are included in the consolidated balance | ||||||||
| December 31, 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 | ||||||||
| $ | $ | |||||||
F-18
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 10. | Leases (continued) |
Lease costs consists of the following:
| Schedule of lease costs | ||||||||
| Year ended December 31, | ||||||||
| 2025 | 2024 | |||||||
| Finance lease cost: | ||||||||
| Depreciation of right-of-use assets | $ | $ | ||||||
| Interest expense on finance lease liabilities | ||||||||
| Operating lease costs | ||||||||
| Third parties | ||||||||
| Related parties | ||||||||
| Lease cost | $ | $ | ||||||
Other lease information:
| Schedule of other lease | ||||||||
| Year ended December 31, | ||||||||
| 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 December 31, 2025 is as follows:
| Schedule of future minimum lease payments under finance leases | ||||
| Amount | ||||
| 2026 | $ | |||
| 2027 | ||||
| Total | ||||
| Imputed interest | ( |
) | ||
| Total finance lease liability | $ | |||
| Disclosed as: | ||||
| Current portion | $ | |||
| Non-Current portion | ||||
| Lease liability | $ | |||
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 | ||||
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| 2031 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 | $ | |||
F-19
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 11. | 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 | December 31, 2025 |
December 31, 2024 |
|||||||||||||||||
| Peoples Bank | ||||||||||||||||||||||
| Promissory note | % | $ | $ | $ | $ | — | ||||||||||||||||
| Commercial loan | % | — | ||||||||||||||||||||
| Commercial promissory note | % | |||||||||||||||||||||
| $ | $ | $ | $ | — | ||||||||||||||||||
| 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 repaid principal of $69,720 and interest of $292,780 during the year ended December 31, 2025.
| · | 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 $51,656 and interest of $9,588, during the year ended December 31, 2025.
| · | Commercial promissory note |
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 July 1 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 $
F-20
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 12. | 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 Recovery 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 settlement agreement with the Department of Justice provided for default interest at a rate of 12% per annum, compounded daily upon any event of default, including any missed instalments. On June 1, 2025, the Company was unable to repay the scheduled instalment and thereby triggered the default interest clause. Default interest has been calculated from April 30, 2025, the date the last instalment was paid.
The Company repaid principal of $159,085 and accrued interest of $31,329 during the year ended December 31, 2025.
| Schedule of assumed liability | ||||||||||||||||||||||
| Interest rate | Maturity Date | Principal | Interest |
December 31, 2025 |
December 31, 2024 |
|||||||||||||||||
| Assumed liability | % | $ | $ | $ | $ | — | ||||||||||||||||
| Disclosed as follows | ||||||||||||||||||||||
| Assumed liability - current portion | — | |||||||||||||||||||||
| 13. | Short-term Convertible Notes |
The short-term convertible notes consist of the following:
| Interest rate | Maturity Date | Principal | Interest | December 31, 2025 |
December 31, 2024 | |||||||||||||||||
| Auctus Fund, LLC | % | $ | $ | $ | $ | |||||||||||||||||
| Joshua Bauman | % | |||||||||||||||||||||
| Series N convertible notes | % | |||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||
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 $
F-21
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 13. | Short-term Convertible Notes (continued) |
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 year ended December 31, 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. These Series N convertible notes are past due and are technically
in default as of December 31, 2025.
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 year ended December 31, 2025, the Company repaid interest of $64,804 on the Series N convertible notes.
| 14. | 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 |
December 31, 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 | $ | $ | $ | $ | $ | |||||||||||||||||||||
F-22
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 14. | Short-term Notes (continued) |
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. No further extensions on the note were granted which is past due and in default, with interest accruing at the default rate of 18% per annum.
During the year ended December 31, 2025, the Company paid interest of $114,000 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 ($251,408) and interest accrued thereon of CDN$49,227 ($35,915) totaling CDN$393,806 ($287,324). During the year ended December 31, 2025, the Company paid interest of CDN$10,000 ($7,305).
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 year ended December 31, 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. The promissory notes were not repaid at December 31, 2025 and are in default.
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 in default and accruing interest at the default rate of 24% per annum. The Company is currently negotiating with the note holders.
During the year ended December 31, 2025, the Company paid interest of $43,896 on the Series R senior secured promissory notes.
F-23
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 15. | 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 | ||||||||
| December 31, 2025 | December 31, 2024 | |||||||
| Opening balance | $ | $ | ||||||
| Promissory note issued | ||||||||
| Repayments | ( | ) | ( | ) | ||||
| $ | $ | |||||||
During the year ended December 31, 2025, the Company repaid $140,000 of the principal outstanding on the promissory note.
F-24
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 16. | 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 $225,750 since issuance and the balance outstanding as of December 31, 2025 was $149,250.
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 was obliged to pay $8,013 per week until the amount of $312,500 was 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 since issuance 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 was obliged to pay $4,808 per week until the amount of $187,500 was 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 was 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 was obliged to pay $7,885 per week until the amount of $307,500 was paid in full. The maturity date of this funding was 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 full amortization of the $60,500 debt discount.
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 was obliged to pay $3,778 per week until the amount of $166,250 was 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 was being amortized using the effective interest method over the repayment period. The Company made weekly cash payments of $3,778 totaling $166,250, thereby extinguishing the debt and the full amortization of the debt discount.
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 was obliged to pay $3,563 per week until the amount of $99,750 was paid in full. The maturity date of this funding was 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 and the full amortization of the debt discount.
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 was obliged to pay $7,500 per week until the amount of $292,500 was paid in full. The Company used $88,141 of the proceeds to settle the August 30, 2024 funding. The maturity date of this funding was December 24, 2025.
The discount and fees totaling $70,250 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 $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 was received in the first quarter of 2026.
F-25
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 16. | Funding arrangements, net (continued) |
April 9, 2025 funding
On April 9, 2025, the Company, through its subsidiary ARIA Kentucky 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 was being amortized using the effective interest method over the repayment period. The Company made weekly cash payments of $12,019, totaling $204,327 and settled the outstanding balance with a payment of $252,404, out of the proceeds of the November 25, 2025 funding, resulting in an overpayment of $12,019. The refund is being discussed with Itria and may be incorporated into the November 25, 2025 funding.
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 May 28, 2026.
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 $218,077 and the balance outstanding at December 31, 2025 was $145,011, net of debt discount of $14,913.
June 19, 2025 funding
On June 19, 2025, the Company, through its subsidiary ARIA Kentucky, entered into a financing arrangement with Itria, whereby it received proceeds of $97,500, net of discount and fees of $27,500. The Company was obliged to pay $3,205 per week until the amount of $125,000 was 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 was being amortized using the effective interest method over the repayment period. The Company made weekly cash payments of $3,205, totaling $44,872 and settled the outstanding balance of $83,333 out of the proceeds of the September 30, 2025 funding, resulting in an overpayment of $3,205 which was refunded to the company on November 24, 2025, thereby extinguishing the debt.
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 $164,971 and the balance outstanding at December 31, 2025 was $241,083, net of debt discount of $45,445.
September 30, 2025 funding
On September 30, 2025, the Company, through its subsidiary ARIA Kentucky, entered into a financing arrangement with Itria, whereby it received proceeds of $247,000, net of discount and fees of $65,500. The Company used $83,333 of the proceeds to settle the June 19, 2025 funding. The Company is obliged to pay $6,010 per week until the amount of $312,500 was paid in full. The maturity date of this funding is October 1, 2026.
The discount and fees totaling $65,500 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 $6,010, totaling $72,115 and the balance outstanding at December 31, 2025 was $201,901, net of discount of $38,484.
November 25, 2025 funding
On November 25, 2025, the Company, through its subsidiary ARIA Kentucky, entered into a financing arrangement with Itria, whereby it received proceeds of $489,375, net of discount and fees of $135,625. The Company used $252,404 of the proceeds to settle the April 9, 2025 funding. 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 November 24, 2026.
The discount and fees totaling $135,625 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 $60,096 and the balance outstanding at December 31, 2025 was $453,475, net of discount of $111,429.
F-26
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 17. | 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 December 31, 2025, the balance outstanding, including interest thereon was $21,448.
| 18. | Related party payables |
| Schedule of related party payable | ||||||||
| December 31, | 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 | ||||||||
| 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 December 31, 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.
F-27
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 18. | Related party payables (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 the year ended December 31, 2025, Mr. Leon earned management fees of $120,000, forfeiting 50% of the fee due to him. In 2024 Mr. Leon forfeited the $240,000 management fees due to him.
At December 31, 2025 and December 31, 2024, the Company had a payable to Shawn Leon of $97,283 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.
The amounts owing to Ms. Greene are repayable on demand and the repayment date is uncertain.
At December 31, 2025 and December 31, 2024, the Company owed Eileen Greene, the spouse of its CEO, Shawn Leon, related party payables of $610,656 and $488,965, respectively.
ERC Investments, LLC
As disclosed in note 4 above, a liability owed to ERC, from Edgewater was assumed by the Company, the aggregate liability assumed by the Company on January 9, 2025 was $720,231.
The Company pays base rent of $76,000 per month to ERC for three properties located in Morehead Kentucky.
Effective October 1, 2025, the Company and ERC entered into a rental abatement agreement, whereby the rental for 425 Clinic Drive and 1111 US 60 W was abated for the three months ended December 31, 2025 by $60,000 and $90,000, respectively. The rental abatement is a once off concession granted to the Company during its first year of operations in Kentucky, while it concentrated on increasing its patient census numbers and to reduce the amount of unpaid rent due to ERC at year end.
At December 31, 2025, the balance owing to ERC was $334,629.
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 December 31, 2025, the balance owing to New Journey was $61,890.
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 December 31, 2025, the balance owing to JDE was $50,646.
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 December 31, 2025, the balance owing to Viking Assets was $113.
F-28
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 18. | Related party payables (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 December 31, 2025, the balance owing to ERCI was $36,271.
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 December 31, 2025, the balance owing to NJ was $51,236.
All related party transactions occur in the normal course of operations and in terms of agreements entered into between the parties.
| 19. | Stockholder’s 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 December 31, 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 18 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 December 31, 2025 and December 31, 2024, respectively.
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 18 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.
| c. | Series B preferred shares |
Authorized and outstanding
The Company has authorized 400,000 Series B preferred shares with a par value of $1.00 per share. The company has no issued and outstanding Series B Preferred shares at December 31, 2025 and December 31, 2024.
| d. | 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 outstanding options at December 31, 2025 under the Plan.
F-29
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 19. | Stockholder’s deficit (continued) |
| e. | 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 December 31, 2025 is as follows:
| No. of shares | Exercise
price per share |
Weighted average exercise price | ||||||||||
| Outstanding as of January 1, 2024 | $ | |||||||||||
| Granted | ||||||||||||
| Forfeited/cancelled | ||||||||||||
| Exercised | ||||||||||||
| Outstanding as of December 31, 2024 | $ | |||||||||||
| Granted | ||||||||||||
| Forfeited/cancelled | ( |
) | ( |
) | ||||||||
| Exercised | ||||||||||||
| Outstanding as of December 31, 2025 | $ | |||||||||||
The following table summarizes information about warrants outstanding at December 31, 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 December 31, 2025 are vested. The warrants outstanding at December 31, 2025 have an intrinsic value of $0.
| 20. | 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.
F-30
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 20. | Segment information (continued) |
The segment operating results of the one reportable segment for the year ended December 31, 2025 and 2024 is disclosed as follows:
| Detox and rehab Services |
| Year ended December 31, 2025 | Year ended December 31, 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 loss before income taxes | $ | ( | ) | $ | ( | ) | ||
| 21. | Net (loss) income per common share |
For the years ended December 31, 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 | ||||||||
| Year ended December 31, 2025 | Year ended December 31, 2024 | |||||||
| Shares issuable upon exercise of warrants | ||||||||
| Shares issuable on conversion of convertible notes | ||||||||
F-31
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 22. | 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 13 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.
| 23. | Income taxes |
The Company is current with its U.S. and Canadian income tax filings through December 31, 2021. Tax returns for the years ended December 31, 2022, 2023, 2024, and 2025 have not yet been filed.
The Company’s operations are based in the US and currently enacted tax laws in the US are used in the calculation of income taxes.
Federal Income Tax - United States
On December 22, 2017, the Tax Cuts and Jobs Act (the TCJA), which significantly modified U.S. corporate income tax law, was signed into law by President Trump. The TCJA contains significant changes to corporate income taxes, including but not limited to the reduction of the corporate income tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80% of current year taxable income and generally eliminating net operating loss carrybacks, allowing net operating losses to carryforward without expiration, one-time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits (including changes to the orphan drug tax credit and changes to the deductibility of research and experimental expenditures that will be effective in the future). Notwithstanding the reduction in the corporate income tax rate, the overall impact of the new federal tax law is uncertain, including to what extent various states will conform to the newly enacted federal tax law.
Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A full valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized. It is the Company’s policy to classify interest and penalties on income taxes as interest expense or penalties expense. As of December 31, 2025 and 2024, there have been no interest or penalties incurred on income taxes.
F-32
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 23. | Income taxes (continued) |
The provision for income taxes consists of the following:
| Schedule of provision for income taxes | ||||||||
| Year
ended December 31, 2025 |
Year
ended December 31, 2024 | |||||||
| Current | ||||||||
| Federal | $ | $ | ||||||
| State | ||||||||
| Current, Total | $ | $ | ||||||
| Deferred | ||||||||
| Federal | $ | $ | ||||||
| State | ||||||||
| Deferred, Total | $ | $ | ||||||
| Tax Benefit | $ | $ | ||||||
The income
tax provision/ (benefit) is different from that which would be obtained by applying the statutory Federal income tax rate of
| Schedule of items causing deference | ||||||||
| Year ended December 31, 2025 | Year ended December 31, 2024 | |||||||
| Taxation credit (charge) at the federal and state statutory rate | $ | $ | ||||||
| State taxation | ||||||||
| Prior year over provision | ||||||||
| Deferred tax liability on purchase price accounting | ||||||||
| Prior year net operating loss true up | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Net tax benefit (expense) | $ | $ | ||||||
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets and liabilities at December 31, 2025 and 2024 are as follows:
| Schedule of components of deferred tax assets and liabilities | ||||||||
| December 31, 2025 | December 31, 2024 | |||||||
| Property and equipment | $ | ( |
) | $ | ( |
) | ||
| Intangible assets | ||||||||
| Net operating losses | ||||||||
| Other | ||||||||
| Gross deferred income tax assets (liabilities) | ||||||||
| Valuation allowance | ( |
) | ( |
) | ||||
| Deferred tax assets, net | $ | $ | ||||||
| Deferred tax liability on acquired intangible assets | ||||||||
| Deferred tax liabilities | $ | $ | ||||||
The Company
has established a valuation allowance against its gross deferred tax assets sufficient to bring its net deferred tax assets to zero due
to the uncertainty surrounding the realization of such assets. Management has determined it is more likely than not that the net deferred
tax assets are not realizable due to the Company’s historical loss position. The valuation allowance for the year ended December
31, 2025 increased by a total of $
As of December 31, 2025, the prior four tax years remain open for examination by the federal or state regulatory agencies for purposes of an audit for tax purposes.
Pursuant to the Internal Revenue Code of 1986, as amended (“IRC”), §382, the Company’s ability to use its net operating loss carry forwards to offset future taxable income is limited if the Company experiences a cumulative change in ownership of more than 50% within a three-year period.
F-33
ETHEMA HEALTH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 24. | Subsequent events |
Bank funding
On January 8, 2026, the Company, through its subsidiary Evernia, entered into a $1,600,000 loan and security agreement with a bank to repay certain liabilities of the Company, the loan is guaranteed by the Company and the Company’s CEO, Mr. Leon. The maturity date of the loan is January 8, 2031and bears interest at a fixed rate of 7.75%, unless the loan is in default whereby the default rate of prime plus 6% or 12%, whichever is the greater, will apply. The loan is repayable in monthly instalment of $24,750 commencing on February 8, 2026, with a balloon payment at maturity of the remaining principal and interest thereon. Certain expenses were deducted off the proceeds resulting in a net proceeds of $1,583,404. The proceeds were used to repay the Mirage Realty, LLC, short term note, related party balances to Shawn Leon and Eileen Greene and for general working capital purposes.
Replacement of promissory note
Effective February 1, 2026, the company entered into a new promissory note agreement replacing the previous promissory note due on the acquisition of the minority interest of ATHI. The promissory note is for $220,000, resulting in a reduction in the liability of $15,000 and is repayable in monthly instalment of $20,000 commencing on February 16, 2026 and for the ten months thereafter. The promissory note bears no interest unless the note is not repaid by the due date of January 16, 2027, then interest will accrue at a maximum rate allowed in Florida or 18% per annum. The original promissory note holder agreed that all obligations due to him under the original promissory note are fully discharged and replaced by the new promissory note.
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.
The Company continues to pursue this acquisition.
| · | On January 7, 2026, the Company entered into an exclusive letter of intent (“LOI”) to acquire the total membership interest of Specialist MAT, PSC (“MAT”), A Kentucky professional limited liability company. The purchase price is estimated at $9.5 million with $6.5 million payable in cash and the balance of $3.0 million funded by a 24-month Sellers note. The principal of the business will sign an employment agreement for a period of two years and continue as the medical director of MAT, in addition the Seller will enter into a 5-year non-compete agreement from closing. The parties agreed to conclude the transaction within 75 days, however the closing date had been extended by an additional 15 days and has still not closed. The parties continue to negotiate in good faith and the exclusivity agreement remains in place. |
New lease agreements
The Company, through its subsidiary ARIA Kentucky, entered into five new lease agreements, effective between January 1, 2026 and March 1, 2026, with its related party, BH Properties and its subsidiaries, Viking Assets, LLC, JDE Properties and New Journey. The leases are for property situated at:
| · | 304 Viking Drive, Morehead, Kentucky with an annual base rent of $60,000. |
| · | 164, 166 and 168 Maple Drive, Morehead Kentucky with an annual base rent of $36,000, $60,000 and $36,000, respectively. |
| · | 2495 Cranston Road, Morehead Kentucky with an annual base rent of $96,000. |
The leases are for an initial period expiring on December 31, 2029, 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, 2027, and annually thereafter. The Company is responsible for utilities, property taxes, repairs and maintenance expenditure and insurance costs.
Funding Arrangement
On March 16, 2026, the Company, through its subsidiary Evernia, entered into a funding arrangement with Itria, whereby it received proceeds of $244,500, net of discount and fees of $68,000. 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 March 16, 2027.
The discount and fees totaling $68,000 associated with this funding was capitalized and is being amortized using the effective interest method over the repayment period.
Related Party funding
During March 2026, Mr. Leon the Company’s CEO advanced $300,000 to the Company. The advance bears interest at 6% per annum and is repayable on demand.
Other than the above, the Company has evaluated subsequent events through the date the audited consolidated financial statements were issued and did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
F-34
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures
Annual Evaluation of Disclosure Controls and Procedures
We have adopted and maintain disclosure controls and procedures (as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Exchange Act), that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC’s rules and forms and that the information is gathered and communicated to our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), to allow for timely decisions regarding required disclosure.
As required by Exchange Act Rule 13a-15, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15 as of the end of the period covered by this report. Based on the foregoing evaluation, our Chief Executive Officer and Chief Financial Officer concluded that due to our limited resources our disclosure controls and procedures are not effective in providing material information required to be included in our periodic SEC filings on a timely basis and to ensure that information required to be disclosed in our periodic SEC filings is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure about our internal control over financial reporting discussed below.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for our company. Our internal control system was designed to, in general, provide reasonable assurance to our management and board regarding the preparation and fair presentation of published financial statements, but because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2025. The framework used by management in making that assessment was the criteria set forth in the document entitled “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission in Internal Control-Integrated Framework (2013). Based on that assessment, our management has determined that as of December 31, 2025, our internal control over financial reporting was not effective due to material weaknesses related to a limited segregation of duties due to our limited resources and the small number of employees. Management has determined that this control deficiency constitutes a material weakness which could result in material misstatements of significant accounts and disclosures that could result in a material misstatement to our interim or annual financial statements that would not be prevented or detected. In addition, due to limited staffing, we are not always able to detect minor errors or omissions in reporting.
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding management’s assessment of our internal control over financial reporting pursuant to temporary rules of the SEC.
Evaluation of Disclosure Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, 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, a control may become inadequate because of changes in conditions or the degree of compliance with 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 not be detected.
As required by the SEC Rules 13a-15(b) and 15d-15(b), we carried out an evaluation under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level due to material weaknesses in internal controls over financial reporting (as described below).
16
Deficiencies and Significant Deficiencies
A material weakness is a deficiency, or a combination of deficiencies, within the meaning of Public Company Accounting Oversight Board (“PCAOB”) Audit Standard No. 5, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses which have caused management to conclude that as of December 31, 2025, our internal controls over financial reporting were not effective at the reasonable assurance level:
| 1. | We do not have sufficient written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of the Sarbanes-Oxley Act which is applicable to us for the year ended December 31, 2025. Management evaluated the impact of our failure to have sufficient written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness. |
| 2. | We do not have sufficient resources in our accounting function, which restricts the Company’s ability to gather, analyze and properly review information related to financial reporting in a timely manner. In addition, due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness. |
We have taken steps to remediate some of the weaknesses described above and we are in discussions with the risk advisory departments of reputable accounting firms to assist us in the COSO framework documentation and testing of the internal controls. We intend to continue to address these weaknesses as resources permit, including the employment of new qualified employees.
Remediation of Deficiencies and Significant Deficiencies
To address these material weaknesses, management engaged financial consultants, performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.
Additionally, we will continue to establish and implement proper processes and systems to remediate the deficiencies we have had, including preventive controls with the segregation of duties on main areas such as payroll, billing, cash recording, and IT control and detective controls involving account reconciliations on a monthly basis.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
17
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Our current directors and executive officers, their ages and their positions, as of the date of this Annual Report, as follows:
| Name | Position | |
| Shawn E. Leon | 66 | Chief Executive Officer, President and Director |
| James Pogue | 73 | Chief Financial Officer |
| Gerald T Miller | 68 | Director |
Set forth below is a brief description of the background and business experience of each of our current executive officers and directors.
Shawn E. Leon, Chief Executive Officer, President and Director
Shawn E. Leon has been an officer and director of the Company since November 2010 and served as the President of the Company’s subsidiaries at all times. In April 2011, Mr. Leon was appointed as the Company’s Chief Executive Officer. Prior to joining the Company, Mr. Leon held the role of President of Greenestone Clinic Inc., Leon Developments Ltd, Port Carling Inn Developments Ltd., 1871 at the Locks Developments Ltd. and Leon Developments Ltd. Mr. Leon graduated with Honors in Business Administration from Wilfrid Laurier University in 1982. Mr. Leon was elected to the Board because of his prior management experience.
James Pogue, Chief Financial Officer
James Pogue was appointed as the Company’s Chief Financial Officer on March 30, 2026. Mr. Poage is a Senior Financial Analyst, based out of the Denver, Colorado. He has over 35 years of experience in corporate accounting and finance, internal audit, tax compliance, investment banking, risk management and business acquisitions. He has a strong background in SEC reporting, risk management, tax planning and business valuation issues, including restructuring for complex acquisition transactions.
Previously, Jim served as CFO and Acquisition Project Manager with several publicly traded oil & gas companies through his own consulting firm. He holds a bachelor’s degree in accounting from the University of Colorado.
Gerald T. Miller, Director
Gerry Miller of Toronto, Ontario, Canada is the Managing Partner of the Law Firm Gardiner Miller Arnold LLP. Mr. Miller’s practice focuses on a comprehensive range of business, finance and real estate issues. In addition to managing the law firm. Mr. Miller’s runs the business law and real estate practice at Gardiner Miller Arnold LLP Law firm. He advises small to medium sized companies in manufacturing, investing and service-related industries. Mr. Miller supervises all merger and acquisition transactions and institutional finance work.
CORPORATE GOVERNANCE
Code of Business Conduct and Ethics
We have adopted a code of conduct that applies to all officers, directors and employees, including those officers responsible for financial reporting. If we make any substantive amendments to the code of conduct or grant any waiver from a provision of the code of conduct to any executive officer or director, we will promptly disclose the nature of the amendment or in a Current Report on Form 8-K to be filed with the SEC.
Our Board of Directors
Our Board currently consists of two members. Our Board judges the independence of its directors by the heightened standards established by the Nasdaq Stock Market. Accordingly, the Board of Directors has determined that our non-employee directors, Mr. Miller, meets the independence standards established by the Nasdaq Stock Market and the applicable independence rules and regulations of the SEC. Our Board considers a director to be independent when the director is not one of our or our subsidiaries’ officers or employees or director of our subsidiaries, does not have any relationship which would, or could reasonably appear to, materially interfere with the independent judgment of such director, and the director otherwise meets the independence requirements under the listing standards of the Nasdaq Stock Market and the rules and regulations of the SEC.
18
Board Committees
Our Board of Directors act as our Audit Committee, our Compensation Committee and our Nominating and Governance Committees.
Audit Committee
The primary purpose of the audit committee is to oversee the quality and integrity of our accounting and financial reporting processes and the audit of our financial statements. The audit committee is responsible for selecting, compensating, overseeing and terminating our independent registered public accounting firm. Specifically, the audit committee’s duties are to recommend to our Board of Directors the engagement of an independent registered public accounting firm to audit our financial statements and to review our accounting and auditing principles. The audit committee will review the scope, timing and fees for the annual audit and the results of audit examinations performed by the external auditors and independent registered public accounting firm, including their recommendations to improve the system of accounting and internal controls.
Compensation Committee
The compensation committee is responsible for, among other things, reviewing and recommending to our Board the annual salary, bonus, stock compensation and other benefits of our executive officers, including our Chief Executive Officer and Chief Financial Officer; reviewing and providing recommendations regarding compensation and bonus levels of other members of senior management; reviewing and making recommendations to our Board on all new executive compensation programs; reviewing the compensation of our Board; and administering our equity incentive plans. The compensation committee may delegate any or all of its duties or responsibilities to a subcommittee of the compensation committee, to the extent consistent with the Company’s organizational documents and all applicable laws, regulations and rules of markets in which our securities trade, as applicable.
19
Nominating and Governance Committee
The nominating and governance committee is responsible for, among other things, annually assessing the composition, skills, size and tenure of the Board of Directors in advance of annual meetings and whenever individual directors indicate that their status may change; annually considering new members for nomination to the Board of Directors; causing the Board of Directors to annually review the independence of directors; and developing and monitoring our general approach to corporate governance issues as they may arise.
Compliance with Section 16(A) of the Exchange Act
Section 16(a) of the Exchange Act requires the Company’s directors, executive officers and persons who beneficially own 10% or more of a class of securities registered under Section 12 of the Exchange Act to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Directors, executive officers and greater than 10% stockholders are required by the rules and regulations of the SEC to furnish the Company with copies of all reports filed by them in compliance with Section 16(a).
Based solely on our review of certain reports filed with the SEC pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended, at December 31, 2025, our officers and directors or 10% stockholders were in compliance with Section 16(a).
Item 11. Executive Compensation.
There has been no annuity, pension or retirement benefits paid to our officers or directors during the past two fiscal years. We currently do not have an employment agreement with the Company’s Chief Executive Officer. There is no compensation committee of the Board. The Board approved the terms of a certain management agreement with Greenestone Clinic, Inc., wholly owned by the Company’s Chief Executive Officer, Shawn Leon, and with Shawn Leon, whereby a management agreement was initially for a term of one year and was for the development of medical clinics in Ontario, Canada. The agreement has been extended from year to year and has been expanded to include overall company management and the development of clinics in the United States. The management agreement allowed for a maximum compensation of $300,000 per year.
Summary Compensation Table
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Option Awards ($) | Non-Equity Plan Compensation ($) | Non-Qualified Deferred Compensation Earnings ($) |
All Other Compensation ($) | Total ($) | ||||||||||||||||||||||||
| Shawn E. Leon, | 2025 | $ | 120,000 | (1) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 120,000 | ||||||||||||||||
| President CEO, CFO | 2024 | $ | 20,000 | (1) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 20,000 | ||||||||||||||||
| (1) | Represents a salary paid to Mr. Leon during the year ended December 31, 2025 and 2024. |
Outstanding Equity Awards at Fiscal Year End
There were no equity awards issued to executive officers during the fiscal year ended December 31, 2025 and there are no outstanding equity awards to named officers as of December 31, 2025.
Information regarding equity compensations plans is set forth in the table below:
| Number of securities to be issued upon exercise of outstanding options |
Weighted average exercise price of outstanding options | Number of securities remaining for future issuance under equity compensation plans | ||||||||||
| Equity Compensation plans approved by the stockholders | ||||||||||||
| 2013 Equity compensation plan | — | $ | — | 10,000,000 | ||||||||
| Equity Compensation plans not approved by the stockholders | ||||||||||||
| None | — | — | — | |||||||||
| — | $ | — | 10,000,000 | |||||||||
Directors Compensation
The following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named directors by us during the year ended December 31, 2025.
| Name | Fees earned or paid in cash ($) |
Stock awards ($) | Option awards ($) | Non-Equity Plan Compensation ($) |
Non-Qualified Deferred Compensation Earnings ($) |
All Other Compensation ($) | Total ($) |
|||||||||||||||||||||
| Shawn E. Leon | — | — | — | — | — | — | — | |||||||||||||||||||||
| Gerald T Miller | — | — | — | — | — | — | — | |||||||||||||||||||||
20
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
| Name of beneficial owner | Amount and nature of beneficial ownership, including common stock |
Percentage
of common stock beneficially owned(1) | ||||||
| Directors and Officers | ||||||||
| Shawn E. Leon | 4,171,864,342 | (2) | 54.0 | % | ||||
| Gerald T. Miller | 500,000 | (3) | * | |||||
| All officers and directors as a group (2 persons) | 4,172,364,342 | 54.0 | % | |||||
* Less than 1%
| (1) | Based on 7,726,283,805 shares of common stock outstanding as of June 29, 2026. |
| (2) | Includes 3,063,187,300 shares held by Ranfurly Holdings LTD, a Company controlled by Mr. Leon, 1,008,677,042 shares owned by EMG Holdings LTD, a company controlled by Eileen Greene, Mr. Leon's spouse and 100,000,000 shares owned by Mr. Leon’s’ son. |
| (3) | Includes 500,000 shares of common stock. |
Item 13. Certain Relationships and Related Party Transactions, and Director Independence
Related Party Transactions
As of December 31, 2025 and 2024, amounts payable to executive officers or their affiliates for related party payables, as detailed in the below table:
| December 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Advance from related party | ||||||||
| Eileen Greene | ||||||||
| Principal opening balance | $ | 273,461 | $ | — | ||||
| Principal advance made | — | 285,000 | ||||||
| Repayments | — | (11,539 | ) | |||||
| 273,461 | 273,461 | |||||||
| Debt discount opening balance | (8,495 | ) | — | |||||
| Debt discount at inception | — | (35,000 | ) | |||||
| Amortization of debt discount | 8,495 | 26,505 | ||||||
| — | (8,495 | ) | ||||||
| Total Related party advance | $ | 273,461 | $ | 264,966 | ||||
| Related party payables | ||||||||
| Shawn E. Leon | $ | 97,283 | $ | 144,353 | ||||
| Eileen Greene | 610,656 | 488,965 | ||||||
| ERC Investments, LLC | 334,629 | — | ||||||
| New Journey, LLC | 61,890 | — | ||||||
| JDE Properties, LLC | 50,646 | — | ||||||
| Viking Assets, LLC | 113 | — | ||||||
| Total related party payables | $ | 1,155,217 | $ | 633,318 | ||||
| Note payable – related parties | ||||||||
| Loan advanced by ERC Investments, LLC | $ | 33,767 | $ | — | ||||
| Accrued interest | 2,504 | — | ||||||
| $ | 36,271 | $ | — | |||||
| Loan advanced by New Journey, LLC | $ | 47,974 | $ | — | ||||
| Accrued interest | 3,262 | — | ||||||
| $ | 51,236 | $ | — | |||||
| Total notes payable – Related party | $ | 87,507 | $ | — | ||||
21
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 December 31, 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.
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 the year ended December 31, 2025, Mr. Leon earned management fees of $120,000 and for the year ended December 31, 2024, Mr. forfeited management fees due to him.
At December 31, 2025 and December 31, 2024, the Company had a payable to Shawn Leon of $97,283 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.
The amounts owing to Ms. Greene are repayable on demand and the repayment date is uncertain.
At December 31, 2025 and December 31, 2024, the Company owed Eileen Greene, the spouse of its CEO, Shawn Leon, related party payables of $610,656 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 $720,231.
The Company pays rent of $76,000 per month to ERC for three properties located in Morehead Kentucky.
Effective October 1, 2025, the Company and ERC entered into a rental abatement agreement, whereby the rental for 425 Clinic Drive and 1111 US 60 W was abated for the three months ended December 31, 2025 by $60,000 and $90,000, respectively. The rental abatement is a once off concession granted to the Company during its first year of operations in Kentucky, while it concentrated on increasing its patient census numbers and to reduce the amount of unpaid rent due to ERC at year end.
At December 31, 2025, the balance owing to ERC was $334,629.
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 December 31, 2025, the balance owing to New Journey was $61,890.
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 December 31, 2025, the balance owing to JDE was $50,646.
22
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 December 31, 2025, the balance owing to Viking Assets was $113.
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 December 31, 2025, the balance owing to ERCI was $36,271.
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 December 31, 2025, the balance owing to NJ was $51,236.
Directors Independence
The common stock of the Company is currently quoted on the OTC Pink, a quotation system which currently does not have director independence requirements. On an annual basis, each director and executive officer will be obligated to disclose any transactions with the Company in which a director or executive officer, or any member of his or her immediate family, have a direct or indirect material interest in accordance with Item 407(a) of Regulation S-K. Following completion of these disclosures, the Board will make an annual determination as to the independence of each director using the current standards for “independence” that satisfy the criteria for the NASDAQ Stock Market, Inc.
As of December 31, 2025, the Board determined that Gerald T Miller is independent and that Mr. Leon is not independent under these standards.
Item 14. Principal Accountant Fees and Services.
RBSM LLP serves as our independent registered public accounting firm for the years ended December 31, 2025 and 2024.
The following is a summary of the fees paid by us to RBSM LLP the years ended December 31, 2025 and 2024 for professional services rendered:
| Year ended December 31, 2025 | Year ended December 31, 2024 | |||||||
| Audit fees and expenses | $ | 125,000 | $ | 125,080 | ||||
| Taxation preparation fees | — | — | ||||||
| Audit related fees | — | — | ||||||
| Other fees | — | — | ||||||
| $ | 125,000 | $ | 125,080 | |||||
Audit Fees
Consists of fees billed for professional services rendered for the audit of our consolidated financial statements and review of interim condensed consolidated financial statements included in quarterly reports and services that are normally provided by RBSM, LLP in connection with statutory and regulatory filings or engagements in fiscal year ended December 31, 2025 and 2024.
Audit Related Fees
Consists of fees billed for accounting, assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under “Audit Fees”.
Tax Fees
Tax Fees consist of the aggregate fees billed for professional services rendered by our principal accounts for tax compliance, tax advice, and tax planning. These services include preparation for federal and state income tax returns.
All Other Fees
We did not incur any other fees billed by auditors for services rendered to our Company, other than the services listed above for the fiscal years ended December 31, 2025 and 2024, respectively.
23
PART IV
Item 15. Exhibits and Financial Statement Schedules and Reports on Form 10-K
| (a) | (1) | The following financial statements are included in this Annual Report on Form 10-K for the fiscal year ended December 31, 2025 |
| 1. | Independent Auditor’s Report | |
| 2. | Consolidated Balance Sheets as of December 31, 2025 and 2024 | |
| 3. | Consolidated Statements of Operations for the years ended December 31, 2025 and 2024 | |
| 4. | Consolidated Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2025 and 2024 | |
| 5. | Consolidated Statements of Cash Flows for the years ended December 31, 2025 and 2024 | |
| 6. | Notes to Consolidated Financial Statements |
| (2) | All financial statement schedules have been omitted as the required information is either inapplicable or included in the Consolidated Financial Statements or related notes. |
| (b) | Exhibits |
| Exhibit No. | Description | Form |
SEC File No. |
Date | File Herewith | Filed by Reference |
| 3.1 | Articles of Incorporation of NNRC, Inc. (as filed with the Secretary of State of Colorado on April 1, 1993) | 10-K | 000-15078 |
March 28, 2013 |
X | |
| 3.2 | Articles of Amendment to the Articles of Incorporation of Nova Natural Resources, Inc. (as filed with the Secretary of State of Colorado on May 8, 2012) | 10-K | 000-15078 |
March 28, 2013 |
X | |
| 3.3 | Articles of Amendment to the Articles of Incorporation of Greenestone Healthcare Corporation (as filed with the Secretary of State of Colorado on March 26, 2013) | 8-K | 000-15078 |
March 29, 2013 |
X | |
| 3.4 | Amended and Restated Bylaws of Greenestone Healthcare Corporation | 8-K | 000-15078 |
March 29, 2013 |
X | |
| 3.5 | Articles of Amendment to the Articles of Incorporation re: Name Change | 8-K | 000-15078 |
April 10, 2017 |
X | |
| 3.6 | First amendment to Amended and Restated Bylaws | 8-K | 000-15078 |
April 10, 2017 |
X | |
| 4.1 | Form of Series L Convertible Note and Warrant Agreement | 8-K | 000-15078 | 42740 | X | |
| 4.2 | Form of LABRYS LP Convertible Note Agreement | 8-K | 000-15078 |
February 2, 2017 |
X | |
| 10.1 | Stock Purchase Agreement I | 8-K | 000-15078 | March 29, 2013 | X | |
| 10.2 | Form of Warrant I | 8-K | 000-15078 | December 30, 2013 | X | |
| 10.3 | Form of Warrant II | 8-K | 000-15078 | December 30, 2013 | X | |
| 10.4 | Stock Purchase Agreement II | 8-K | 000-15078 | December 30, 2013 | X | |
| 10.5 | Share Purchase Agreement, dated as of December 16, 2014 by and between the Registrant and Jainheel Patekh Medical Professional Corporation | 8-K | 000-15078 | December 23, 2014 | X | |
| 10.6 | Collateral Note, Dated December 16, 2014 | 8-K | 000-15078 | December 23, 2014 | X | |
| 10.7 | Seastone of Delray Asset Purchase Agreement, Management Services Agreement and Commercial Real Estate Contract | 8-K | 000-15078 |
May 23, 2016 |
X | |
| 10.8 | Stock Purchase Agreement re: Cranberry Cove Holdings Ltd. | 8-K | 000-15078 |
February 17, 2017 |
X |
24
| 16.1 | Letter from Jarvis Ryan Associates, LLP 8-K 000-15078 | 8-K | 000-15078 | July 19, 2014 | X | |
| 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d 14(a), promulgated under the Securities and Exchange Act of 1934. | X | ||||
| 31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a), promulgated under the Securities and Exchange Act of 1934. | |||||
| 32.1 | Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Rule 18 U.S.C 1350 as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 | X | ||||
| 32.1 | Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Rule 18 U.S.C 1350 as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 | X | ||||
| 101.INS | Inline XBRL Instance Document | X | ||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | X | ||||
| 101.CAL | Inline Taxonomy Extension CAL XBRL Calculation Linkbase Document | X | ||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | X | ||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | X | ||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | X | ||||
| 101 | Cover Page Interactive Data File (embedded within the Inline XBRL Document) |
25
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: June 30, 2026
By: /s/ Shawn E. Leon
Name: Shawn E. Leon
Title: Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Name | Position | Date |
| /s/Shawn E. Leon | Chief Executive Officer (Principal Executive Officer), President and Director | June 30, 2026 |
| Shawn Leon | ||
| /s/ James Poage | Chief Financial Officer (Principal Financial Officer) | June 30, 2026 |
| James Poage | ||
| /s/ Gerald T. Miller | Director | June 30, 2026 |
| Gerald T. Miller |
26
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 Annual Report on Form 10-K 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: June 30, 2026
| /s/ Shawn E. Leon | |
Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
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, James Poage, certify that:
I have reviewed this Annual Report on Form 10-K 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: June 30, 2026
| /s/ James Poage | |
| Chief Financial Officer (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 Annual Report of Ethema Health Corporation, a Colorado corporation (the “Company”), on Form 10-K for the period ended December 31, 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 (Principal Executive Officer) | |
| June 30, 2026 |
Exhibit 32.2
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 Annual Report of Ethema Health Corporation, a Colorado corporation (the “Company”), on Form 10-K for the period ended December 31, 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/ James Poage | |
Chief Financial Officer (Principal Financial Officer) | |
| June 30, 2026 |