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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

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

 

For the fiscal year ended: December 31, 2023

 

or

 

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

 

For the transition period from ______to _________

 

Commission file number: 000-15078

 

Ethema Health Corporation

 

(Exact name of registrant as specified in its charter)

 

Colorado 84-1227328

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

950 Evernia Street

West Palm BeachFlorida 33401

(Address of principal executive offices)

 

(416500 0020

(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:

 

Common Stock, $0.01 par value per share

(Title of class) 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ☐  No  ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ☐  No  ☒ 

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒  No  ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of issuer’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

 

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

 

 

 

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

 

Large accelerated filer Accelerated filer
Non-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  ☐  No  ☒

 

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2023, based on a closing share price of $0.0006 was approximately $2,073,714.

 

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

 

 

 

 

 

ETHEMA HEALTH CORPORATION  

YEAR ENDED DECEMBER 31, 2023

TABLE OF CONTENTS

 

    PAGE
PART I.    
Item 1. Business 1
Item 1A. Risk Factors 3
Item 1B. Unresolved  Staff Comments 3
Item 2. Properties 3
Item 3. Legal Proceedings 3
Item 4. Mine Safety Disclosures 3
 
PART II.    
Item 5. Market for Registrant’s Common Equity Related Stockholder Matters and Issuer Purchases of Equity Securities 4
Item 6. Reserved 5
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of  Operations 5
Item 8. Financial Statements and  Supplementary Data 10
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 11
Item 9A. Controls and Procedures 11
Item 9B. Other Information 12
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 12
     
PART III    
Item 10. Directors, Executive Officers and Corporate Governance 13
Item 11. Executive  Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 15
Item 13. Certain Relationships and Related Transactions, and Director Independence 16
Item 14. Principal Accountant Fees and Services 17
Part IV.    
Item 15. Exhibits and Financial Statements Schedules 18
SIGNATURES 21

 

 

 

 

PART I

 

Special Note Regarding Forward-Looking Statements

 

Many of the matters discussed within this Annual Report contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) on our current expectations and projections about future events. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “potential,” “continue,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” and similar expressions. These statements are based on our current beliefs, expectations, and assumptions and are subject to a number of risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those expressed, projected or implied in or by the forward-looking statements. Such risks and uncertainties include the risks noted under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but are also contained elsewhere. We do not undertake any obligation to update any forward looking statements. Unless the context requires otherwise, references to “we,” “us,” “our,” and “Ethema,” refer to Ethema Health Corporation and its subsidiaries.

 

Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We do not undertake any obligation to update any forward-looking statements.

 

Item 1. Business.

 

Company History

Ethema Health Corporation (the “Company” or “Ethema”), a Colorado corporation was incorporated under the laws of the State of Colorado on April 1, 1993, and is the surviving company of a merger, effective February 1, 1995, between the Company and Nova Natural Resources Corporation, a Delaware corporation (“Nova Delaware”). The merger was effectuated solely for the purpose of changing the Company’s domicile from Delaware to Colorado. At all times prior to 2001, the Company was engaged in the oil and gas exploration business. Nova Delaware was the successor entity to Nova Petroleum Corporation, a Delaware corporation, and Power Resources Corporation, a Delaware corporation, which merged in 1986 (“the 1986 Merger”). Prior to the 1986 Merger, Nova Petroleum Corporation and Power Resources Corporation had operated since 1979 and 1972, respectively. In 2001, the Company entered into the electronics business and this business was active in 2001 and 2002, as part of the Torita Group. After 2002, the Company continued with various stages of development in this business until 2010.

 

On April 1, 2010, the Company changed its principal operations from development stage electronics to healthcare services. On March 29, 2010, the Company entered into a one year consulting agreement with GreeneStone Clinic Inc., a Canadian corporation (“Greenestone Clinic”), whereby Greenestone Clinic provided consulting services for the Company’s development and operation of medical clinics in the province of Ontario, Canada. Specifically, Greenestone Clinic provided medical and business expertise in the initial startup of private clinics and technical assistance to ensure that the clinics were in compliance with governmental policy and procedure requirements as well as any operational requirements. At the time of entering into this consulting agreement, Greenestone Clinic operated a clinic at the Muskoka property housing its addiction treatment clinic and provided endoscopy services. The Company started offering medical services in June 2010, offering various medical services, including endoscopy, cardiology and executive medicals, which services were subsequently sold.

 

During December 2016, the Company obtained a license to operate and provide addiction treatment healthcare services in Florida, USA. The company commenced operations under this license with effect from January 2017.

 

On February 14, 2017, the Company completed a series of transactions (referred to collectively as the “Restructuring Transactions”), including a Share Purchase Agreement (the “SPA”) whereby the Company acquired 100% of the stock of Cranberry Cove Holdings Ltd. (“CCH”) 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 GreeneStone Muskoka operated. The Company entered into an Asset Purchase Agreement (the “APA”) whereby the assets of GreeneStone Muskoka were sold by GreeneStone 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 GreeneStone Muskoka, the Company closed on the acquisition of the business and real estate assets of Seastone Delray pursuant to certain real estate and asset purchase agreements through its wholly owned subsidiary, Addiction Recovery Institute of America, LLC (“ARIA”). The purchase price for the ARIA assets was US$6,070,000.

1
 

 

 

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 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 gross proceeds of $0, after Greenstone Muskoka forgave its intercompany receivable owing from the Company of $6,690,381 and the Company forgave its intercompany balance owing from ARIA of $9,605,315.

 

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

 

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

 

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

 

Corporate Structure

 

The Company consists of the following entities:

 

  Ethema Health Corporation (Parent company);

 

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

 

  American Treatment Holdings, Inc, a US registered company (75% owned);

 

ATHI owns 100% of the members interest of Evernia.

 

  Evernia Health Center, a US registered company;

 

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

  

  Delray Andrews RE, LLC (“DARE”), a US registered company (wholly owned and dormant);

 

DARE has remained dormant since inception.

 

Employees

 

As of December 31, 2023, Ethema had 65 employees.

2
 

 

Marketing

 

The addiction treatment business in the USA operates as an insured healthcare service. Our marketing efforts are long-term processes of establishing relationships with relevant professionals and our treatment staff. We use industry specific conferences and functions to network with these professionals.

 

Through Evernia, the Company has an in-network relationship with several health care providers and the majority of the Company’s clients are sourced from these health care providers. 

 

Competition

 

There are a significant amount of treatment facilities in the United States, we compete with these clinics for patients who are typically covered by insured healthcare services.

 

Environmental Regulations

 

The Company is not currently subject to any pending administrative or judicial enforcement proceedings arising under environmental laws or regulations. Environmental laws and regulations may be adopted in the future which may have an impact upon the Company’s operations.

 

Item 1A. Risk Factors.

 

Not applicable because we are a smaller reporting company.

 

Item 1B. Unresolved Staff Comments

 

None. 

 

Item 2. Properties.

 

Ethema Executive Offices

 

The Company’s executive offices are located at 950 Evernia Street, West Palm Beach, Florida, 33406.

 

West Palm Beach Treatment Operations

 

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

 

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.

 

  

3
 

 

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities .

 

The Company’s common stock is quoted on the Over-the-counter Market (the “OTC PINK”) under the symbol “GRST”. The Company was sponsored by the market maker Wilson Davis & Co. from Salt Lake City, Utah, which filed a Form 15c2-11 application with the Financial Industry Regulatory Authority (“FINRA”) for the Company in 2011. This application was approved by FINRA in February 2012, and Wilson Davis & Co. first quoted the stock in March 2012.

 

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

 

The last reported sale price of our common stock on the OTC Pink on May 6, 2024 was $0.0003 per share. As of May 6, 2024, there were approximately 157 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, 2023 in transactions that were none registered under the Securities Act.

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

 

Penny Stock

 

The U.S. Securities and Exchange Commission (the “SEC”) has adopted rules that regulate broker dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws. (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.

 

The broker dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer’s account.

 

4
 

 

In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.

 

These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling our securities.

 

Issuer Purchases of Equity Securities

 

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

 

Item 6. Reserved

 

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, 2023.

 

Results of operations for the year ended December 31, 2023 and the year ended December 31, 2022.

 

Revenue

 

Revenue was $5,344,976 and $4,820,747 for the years ended December 31, 2023 and 2022, respectively, an increase of $524,229 or 10.9%.

 

Revenue from patient treatment was $5,159,680 and 4,411,546 for the years ended December 31, 2023 and 2022, respectively, an increase of $748,134 or 17.0%. The increase is due to the increase in the number of in-network patients at the facility due to the approval of the facility by a number of health care plans over the current year.

 

Revenue from rental income was $185,296 and $377,351 for the years ended December 31, 2023 and 2022, respectively, a decrease of $192,055 or 50.4%. The Company disposed of its real property owning subsidiary, Cranberry Cove Holdings, to a related party , Leonite Capital, LLC on June 30, 2023, revenue was only recognized for the first half of the current fiscal year.

 

Operating Expenses

 

Operating expenses was $5,886,896 and $4,331,630 for the years ended December 31, 2023 and 2022, respectively, an increase of $1,555,266 or 35.9%. The increase in operating expenses is attributable to:

 

·        General and administrative expenses was $1,041,501 and $805,372 for the years ended December 31, 2023 and 2022, respectively, an increase of $236,129 or 29.3%. The increase is primarily attributable to due to an increase in insurance costs of $85,701, due to the general hardening of the insurance market in South Florida, an increase in capital raising costs of $40,470 for funds spent on exploring capital raising opportunities, and the balance of $117,959 consisting of increase in numerous individually insignificant costs, related to the increase in the number of patients passing through the facility during the current period.

 

·           Rent expense was $614,793 and $427,482 for the years ended December 31, 2023 and 2022 an increase of $187,311 or 43.8%. The increase is primarily due to an increase in rental which arose on the acquisition of the building from our landlord and the immediate disposal of the building to a third party on August 4, 2023, resulting in the cancellation of the old lease which expired in January 2027 and entering into a new 20 year lease expiring in August 2043, at an increased current rental of $33,161 per month as adjusted for rental smoothing over the term of the lease on both the cancelled old lease and the new 20 year lease, see gain on disposal of property below.
5
 

 

·           Management fees were $368,003 and $132,500 for the years ended December 31, 2023 and 2022, respectively, an increase of $235,503 or 177.7%. Management fees included a once off charge of $185,503 related to a fee charged by Leon Developments to Cranberry Cove prior to its disposal to a related party Leonite Capital on June 30, 2023. In addition, the Company paid management fees of $182,500 to the minority shareholder of ATHI during the year.
   
·           Professional fees were $707,413 and $463,678 for the years ended December 31, 2023 and 2022, respectively, an increase of $243,735 or 52.6%. The increase is primarily due to the increase in professional fees related to the acquisition and immediate disposal of the real property in which the treatment facility operates on August 4, 2023, see gain on disposal of property, below, and an increase in contractor fees related to the increase in the number of patients treated at the facility during the current year, which resulted in increased revenues.
   
·           Salaries and wages was $2,656,267 and $1,962,479 for the years ended December 31, 2023 and 2022, respectively, an increase of $693,788 or 35.4%. The increase is due to the increase in headcount to service the increase in the number of patients treated at the facility during the current year.
   
·           Depreciation expense was $498,919 and $540,119 for the years ended December 31, 2023 and 2022, respectively, a decrease of $41,200 or 7.6%. The decrease is primarily due to the disposal of Cranberry Cove Holdings to Leonite Capital, a related party, on June 30, 2023. Cranberry Cove assets included buildings and leasehold improvements which were being depreciated prior to disposal.

  

Operating (loss) profit

 

The operating (loss) profit was $(541,920) and $489,117 for the years ended December 31, 2023 and 2022, respectively, an increase in loss of $1,031,037 or 210.8%. The increase in loss is due to the increase in operating expenses of $1,555,266, discussed in detail above, including once off management fees of $245,503, increased professional fees and capital raising fees which are not expected to incur in future periods, offset by the increase in revenue of $524,229, discussed in detail above.

 

Other income

 

Other income was $0 and $15,760 for the years ended December 31, 2023 and 2022, respectively. In 2022 other income consisted of a financial inducement granted to the Company by the previous landlord.

 

Forgiveness of government relief loan

 

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

 

Gain on disposal of property

 

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

 

Loss on debt extinguishment

 

Loss on debt extinguishment was $277,175 and $0 for the years ended December 31, 2023 and 2022, respectively, an increase of $277,175 or 100.0%. The loss on debt extinguishment is related primarily to replacement warrants issued to Leonite Capital as part of the debt settlement reached with Leonite.

 

Extension fee on property purchase

 

The extension fee on the property purchase was $140,000 and $0 for the years ended December 31, 2023 and 2022, respectively, an increase of $140,000 or 100%. The extension fee was levied by the landlord of our West Palm Beach facility to afford us additional time to structure the acquisition of the facility, which we in turn disposed of to a third party lender.

 

Penalty on convertible debt

 

The penalty on convertible notes was $34,688 and $60,075 for the years ended December 31, 2023 and 2022, respectively, an increase of $25,387 or 42.3%. The penalty on convertible note was agreed upon with one of our lenders whose note was in default and was subsequently settled after June 30, 2023. 

 

Interest income 

 

Interest income was $676 and $78 for the years ended December 31, 2023 and 2022 respectively. Interest income is immaterial.

 

 

6
 

 

Interest expense

 

Interest expense was $500,226 and $588,477 for the years ended December 31, 2023 and 2022, respectively, a decrease of $88,251 or 15.0%, primarily due to the decrease in mortgage interest due to the disposal of CCH, our property owning subsidiary on June 30, 2023, and a decrease in interest expense on convertible notes and promissory notes settled during the current period.

 

Debt discount

 

Debt discount was $281,354 and $624,683 for the years ended December 31, 2023 and 2022, respectively, a decrease of $343,329 or 54.6%. The decrease is primarily due to the full amortization of debt discount on convertible notes in the prior year. The current year amortization consists of the amortization of discount on receivables funding.

 

Foreign exchange movements

 

Foreign exchange movements were $(95,032) and $1,071,320 for the years ended December 31, 2023 and 2022, 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. In the prior year, the foreign exchange movements included the realization of significant translation differences on foreign subsidiaries sold and in the current year we disposed of Cranberry Cove Holdings, our last foreign subsidiary denominated in Canadian Dollars, to a related party.

 

Net income before taxation

 

Net income before taxation was $614,453 and $407,408 for the years ended December 31, 2023 and 2022, respectively, an increase of $207,045 or 50.8%. The increase is primarily due to the gain on sale of property, and the decrease in debt discount and interest expense, offset by the increase in the operating loss, the loss on debt extinguishment, the extension fee paid on the property purchase and the foreign exchange movements, all discussed in detail above.

 

Taxation

 

Taxation was $391,962 and $(112,220) for the years ended December 31, 2023 and 2022, respectively an increase of $504,182 or 449.3%. The increase is due to the completion of tax returns for our operating subsidiaries during the current year, which resulted in the reversal of previously provided for income taxes, primarily related to accelerated depreciation allowances on property and equipment and the reversal of the deferred tax liability related to intangible assets. The 2022 charge relates to the profitable Evernia operations, which has been subsequently reversed in the 2023 year.

 

Net income

 

Net income was $1,006,415 and $295,188 for the years ended December 31, 2023 and 2022, respectively, an increase of $711,227 or 240.9%. The increase is due to the increase in income before taxation and the reversal of prior period taxation charges and deferred tax balances, discussed above.

   

Liquidity and Capital Resources

 

Cash used in operating activities was $(0.5) million and cash generated by operating activities was $1.6 million for the years ended December 31, 2023 and 2022, respectively a decrease of $2.1 million or 129.6%. The decrease is primarily due to the following: 

 

·           The increase in net income of $0.7 million, as discussed above;
   
·           The decrease in non-cash movements of $(2.7) million, primarily due to the gain on disposal of property of $(2.5) million, as discussed above;
   
·           The increase in working capital of $(0.1) million, primarily due to an increase in the movement of accounts receivable of $0.3 million, a decrease in the movement in accounts payable and accrued liabilities of $(0.1) million, and a decrease in the movement of taxes payable of $0.4 million due to the reversal of prior year tax provisions.

 

Cash provided by investing activities was $2.5 million and cash used in investing activities was $0.7 million for the years ended December 31, 2023 and 2022, respectively. The Company exercised its option to acquire 950 Evernia Street, where it conducts its treatment facility for net proceeds of $5.2 million, net of $0.4 million of deposits previously paid. Upon acquisition, we immediately sold the property for net proceeds of $8.1 million, after fees and expenses related to the disposal. During the current year, we paid a lease deposit of $374,000 for the real property lease entered into immediately upon disposal of the real property. In the prior year we invested $0.4 million in deposits for the purchase of the Evernia Street property and a further $0.3 million in property and equipment for the treatment center.

 

7
 

 

Cash used in financing activities was $(2.1) million and cash provided by investing activities was $0.3 million for the years ended December 31, 2023 and 2022, respectively. In the current year, the Company used a portion of the proceeds from investing activities for the net repayment of convertible notes of $(1.0) million, the net repayment of promissory notes of $(0.1) million and the payment of third party loans of $0.3 million.. The Company also repaid net receivables funding of $0.4 million, mortgage loans of $0.1 million and related party loans of $0.2 million during the current year. In the prior year, we repaid net promissory notes of $0.1 million, mortgage loans of $0.1 million, and third party loans of $0.1 million, funded by net receivables funding of $$.4 million and related party loans of $0.3 million.

 

Over the next twelve months we estimate that the company will require approximately $4.8 million in funding to repay its obligations if these obligations are not converted to equity. We will need funding for working capital as we continue to seek opportunities for addiction treatment in the US markets. There is no assurance that the Company will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on the Company’s financial condition. In the opinion of management, the Company’s liquidity risk is assessed as high.

 

Going Concern

 

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

 

Critical accounting policies

 

Revenue recognition

 

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

 

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

 

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

 

Allowance for Doubtful Accounts, Contractual and Other Discounts

 

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

8
 

  

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 operation leases, by evaluating the terms of the lease, including the following; the duration of the lease; the implied interest rate in the lease; the cash flows of the lease; and whether the Company intends to retain ownership of the asset at the end of the lease term.

 

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

 

Long Lived Assets

 

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

 

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

 

Critical Accounting Estimates

 

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

 

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

 

Revenue recognition

 

Management constantly monitors the level of billings and collections on those billings and makes an estimation of the percentage of billings that will ultimately be recorded as revenue. The various managed care contracts under which these discounts must be calculated are complex, subject to interpretation and adjustment, and may include multiple reimbursement mechanisms for different types of services provided in the Company’s inpatient facilities and cost settlement provisions. Management estimates the transaction price on a payor-specific basis given its interpretation of the applicable regulations or contract terms. The services authorized and provided and related reimbursement are often subject to interpretation that could result in payments that differ from the Company’s estimates.

 

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

 

Leases

 

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

 

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

 

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

 

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

 

Long-lived assets

 

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

 

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

 

9
 

 

 

 

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 229) F-1
Consolidated Balance Sheets as of December 31, 2023 and 2022 F-3
Consolidated Statements of Operations and Comprehensive (Loss) income for the years ended December 31, 2023 and 2022 F-4
Consolidated Statements of Changes in Stockholders Deficit for the years ended December 31, 2023 and 2022 F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 F-6
Notes to the Consolidated Financial Statements F-7

  

 

10
 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors and Stockholders of

Ethema Health Corporation and Subsidiaries

West Palm Beach, FL 33401

 

Opinion on the Financial Statements

 

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

 

The Company's Ability to Continue as a Going Concern

 

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

 

Basis for Opinion

 

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

 

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

 

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

 

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

 

We determined that there are no critical audit matters.

 

/s/ RBSM LLP

 

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

 

New York, NY

May 7, 2024

 

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

 

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

 

Member: ANTEA International with affiliated offices worldwide

 

F-1
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and
Stockholders of Ethema Health Corporation

West Palm Beach, Florida

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Ethema Health Corporation (the Company) at December 31, 2022, and the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ deficit, and cash flows for each of the year ended December 31, 2022, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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

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

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

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 3 to the consolidated financial statements, the Company has accumulated deficit of approximately $43.5 million and negative working capital of approximately $12.7 million at December 31, 2022, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Accounting for Embedded Conversion Features on Convertible Notes – Refer to Notes 9 and 14 to the Financial Statements

The principal considerations for our determination that performing procedures relating to the valuation of derivatives is a critical audit matter are the significant judgment by management when developing the fair value of the derivative liabilities. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the valuation models used and related variable inputs used within those models.

 

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing management’s process for developing the fair value estimate; evaluating the appropriateness of the valuation techniques; testing the completeness and accuracy of underlying data used in the model; and evaluating the significant assumptions used by management, including the values of expected volatility and discount rate. Evaluating management’s assumptions related to the volatility amounts and discount rates involved evaluating whether the assumptions used by management were reasonable considering the current and historical performance, the consistency with external market and industry data, and whether these assumptions were consistent with evidence obtained in other areas of the audit.

 

/s/ Daszkal Bolton LLP
   
   
Boca Raton, Florida
 
March 31, 2023  
   
We served as the Company’s auditor from 2018 to March 2023.

  

 

F-2
 

ETHEMA HEALTH CORPORATION

CONSOLIDATED BALANCE SHEETS

 

   December 31, 2023  December 31, 2022
ASSETS   
       
Current assets          
Cash  $68,573   $140,757 
Accounts receivable, net   313,338    337,074 
Prepaid expenses   18,159    44,718 
Other current assets   3,030    20,347 
Total current assets   403,100    542,896 
Non-current assets          
Property and equipment   508,401    2,974,395 
Intangible assets, net   894,952    1,252,932 
Right of use assets   9,323,723    1,393,071 
Deposits paid   389,000    400,000 
Total non-current assets   11,116,076    6,020,398 
Total assets  $11,519,176   $6,563,294 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
Current liabilities          
Accounts payable and accrued liabilities  $352,101   $170,934 
Taxes payable         248,644 
Convertible notes, net of discounts   4,419,927    5,269,250 
Short-term notes   680,672    460,534 
Mortgage loans         3,504,605 
Receivables funding   211,961    416,731 
Government assistance loans   14,962    14,818 
Operating lease liability   38,563    287,017 
Finance lease liability   8,426    7,891 
Accrued dividends         194,829 
Related party payables   2,572,292    2,713,878 
Total current liabilities   8,298,904    13,289,131 
Non-current liabilities          
Government assistance loans   20,520    79,555 
Deferred taxation         217,451 
Third party loans         578,335 
Operating lease liability   9,383,557    1,206,413 
Finance lease liability   16,475    24,952 
Total non-current liabilities   9,420,552    2,106,706 
Total liabilities   17,719,456    15,395,837 
           
Preferred stock - Series B; $1.00 par value 10,000,000 authorized, 0 and 400,000 shares issued and outstanding as of December 31, 2023 and 2022, respectively.         400,000 
           
Stockholders’ deficit          
Preferred stock - Series A; $0.01 par value, 10,000,000 authorized, 4,000,000 shares issued and outstanding as of December 31, 2023 and 2022.   40,000    40,000 
Common stock - $0.01 par value, 10,000,000,000 shares authorized; 
3,729,053,805
 shares issued and outstanding as of December 31, 2023 and December 31, 2022.
   37,290,539    37,290,539 
Additional paid-in capital   26,187,925    23,419,917 
Discount for shares issued below par value   (27,363,367)   (27,363,367)
Accumulated other comprehensive loss         (5,065)
Accumulated deficit   (42,355,377)   (43,484,751)
Stockholders’ deficit attributable to Ethema Health Corporation stockholders’   (6,200,280)   (10,102,727)
Non-controlling interest         870,184 
Total stockholders’ deficit   (6,200,280)   (9,232,543)
Total liabilities and stockholders’ deficit  $11,519,176   $6,563,294 

 

 

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

 

 

F-3
 

 

ETHEMA HEALTH CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS 

AND COMPREHENSIVE (LOSS) INCOME

 

   Year ended
December 31, 2023
  Year ended
December 31, 2022
       
Revenues  $5,344,976   $4,820,747 
           
Operating expenses          
General and administrative   1,041,501    805,372 
Rent expense   614,793    427,482 
Management fees   368,003    132,500 
Professional fees   707,413    463,678 
Salaries and wages   2,656,267    1,962,479 
Depreciation expense   498,919    540,119 
Total operating expenses   5,886,896    4,331,630 
           
Operating (loss) profit   (541,920)   489,117 
           
Other (expense) income          
Other income         15,760 
Forgiveness of government relief loan         104,368 
Gain on sale of property   2,484,172       
Loss on debt extinguishment   (277,175)      
Extension fee on property purchase   (140,000)      
Penalty on notes and convertible notes   (34,688)   (60,075)
Interest income   676    78 
Interest expense   (500,226)   (588,477)
Debt discount   (281,354)   (624,683)
Foreign exchange movements   (95,032)   1,071,320 
Net income before taxation   614,453    407,408 
Taxation   391,962    (112,220)
Net income   1,006,415    295,188 
Net loss (income) attributable to non-controlling interest   170,184    (47,308)
Net income attributable to Ethema Health Corporation Stockholders’   1,176,599    247,880 
Preferred stock dividend   (47,225)   (97,782)
Net income available to common shareholders of Ethema Health Corporation   1,129,374    150,098 
Accumulated other comprehensive loss          
Foreign currency translation adjustment         (821,597)
           
Total comprehensive income (loss)  $1,129,374   $(671,499)
           
Basic income per common share  $0.00   $0.00 
Diluted income per common share  $0.00   $0.00 
Weighted average common shares outstanding – Basic   3,729,053,805    3,704,807,230 
Weighted average common shares outstanding – Diluted   3,903,671,684    4,276,363,181 

 

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

 

 

 

F-4
 

ETHEMA HEALTH CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

 

                                     
   Series A Preferred  Common  Additional Paid  Discount  Comprehensive  Accumulated  Non- controlling shareholders   
   Shares  Amount  Shares  Amount  in Capital  to par value  Income  Deficit  Interest  Total
 Balance as of December 31, 2021   4,000,000    40,000    3,579,053,805    35,790,539    22,791,350    (26,013,367)   816,532    (44,103,311)   822,876    (9,855,381)
Adjustments to prior period on adoption of ASU 2020-06   —            —                              468,462          468,462 
Conversion of convertible notes   —            150,000,000    1,500,000          (1,350,000)                     150,000 
Transactions with related parties   —            —            628,567                            628,567 
Foreign currency translation   —            —                        (821,597)               (821,597)
Net income   —            —                             247,880    47,308    295,188 
Dividends accrued   —            —                              (97,782)         (97,782)
 Balance as of December 31, 2022   4,000,000   $40,000    3,729,053,805   $37,290,539   $23,419,917   $(27,363,367)  $(5,065)  $(43,484,751)  $870,184   $(9,232,543)
Disposal of subsidiary to related party   —            —            2,034,885                      (700,000)   1,334,885 
Deemed extinguishment of debt by related party   —            —            461,184                            461,184 
Fair value of warrants issued on debt extinguishment   —            —            271,939                            271,939 
Foreign currency translation   —            —                        5,065                5,065 
Net income   —            —                              1,176,599    (170,184)   1,006,415 
Dividends accrued   —            —                              (47,225)         (47,225)
 Balance as of December 31, 2023   4,000,000   $40,000    3,729,053,805   $37,290,539   $26,187,925   $(27,363,367)         (42,355,377)         (6,200,280)

 

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

 

 

F-5
 

ETHEMA HEALTH CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS 

 

 

  

Year ended

December 31,

2023

 

Year ended

December 31,

2022

Operating activities          
Net income  $1,006,415   $295,188 
Adjustment to reconcile net income to net cash (used in) provided by operating activities:          
Depreciation and amortization expense   498,919    540,119 
Amortization of debt discount   281,354    624,683 
Gain on disposal of property   (2,484,172)      
Loss on debt extinguishment   277,175       
Forgiveness of federal relief loan         (104,368)
Penalty on promissory notes   34,688    60,075 
Amortization of right of use asset   177,220    260,745 
Deferred taxation movement   (217,451)   (55,606)
Changes in operating assets and liabilities          
Accounts receivable   78,037    (215,364)
Prepaid expenses   26,562    (14,996)
Other current assets   5,513    (3,113)
Accounts payable and accrued liabilities   201,978    305,785 
Operating lease liabilities   (179,184)   (241,083)
Taxes payable   (237,211)   125,014 
Net cash (used in) provided by operating activities   (530,157)   1,577,079 
           
Investing activities          
Acquisition of real property, net of $400,000 deposit paid   (5,209,276)      
Proceeds on disposal of real property   8,093,448       
Purchase of property and equipment   (40,602)   (315,822)
Proceeds on sale of subsidiary, net of cash of $1,421         (1,421)
Proceeds from deposits         4,984 
Investment in deposits   (389,000)   (400,000)
Net cash provided by (used in) investing activities   2,454,570    (712,259)
           
Financing activities          
Repayment of mortgage   (58,320)   (117,073)
Proceeds from convertible notes   150,000       
Repayment of convertible notes   (1,153,666)      
Proceeds from promissory notes   447,000    160,000 
Repayment of promissory notes   (568,325)   (289,044)
Proceeds from receivables funding   580,646    682,500 
Repayment of receivables funding   (994,483)   (330,312)
Repayment of government assistance loans   (14,579)   (2,970)
Repayment of third party loans   (283,746)   (76,856)
Repayment of finance leases   (7,943)   (7,437)
(Repayment) proceeds of related party notes   (174,012)   284,906 
Net cash (used in ) provided by financing activities   (2,077,428)   303,714 
           
Effect of exchange rate on cash   80,831    (1,076,599)
           
Net change in cash   (72,184)   91,935 
Beginning cash balance   140,757    48,822 
Ending cash balance  $68,573   $140,757 
           
Supplemental cash flow information          
Cash paid for interest  $425,117   $234,240 
Cash paid for income taxes  $     $   
           
Non-cash investing and financing activities          
Fair value of warrant issued on debt extinguishment  $271,939   $   
Disposal of subsidiary to related party  $1,334,885   $   
Deemed extinguishment of debt by related party  $461,184   $   
Conversion of convertible notes  $     $150,000 

 

   

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

 

 

F-6
 

 

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. Evernia is currently the only active treatment center operated by the Company.

 

The Company sold its real estate on which its Greenstone Muskoka clinic operated during the current year, see note 4 below.

     

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 US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

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.

 

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

 

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

 

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

 

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

 

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

 

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

 

The relevant translation rates are as follows: For the year ended December 31, 2023, a closing rate of CDN$1 equals US$0.7561 and an average exchange rate of CDN$1 equals US$0.7409, for the year ended December 31, 2022, a closing rate of CDN$1.0000 equals US$0.7383 and an average exchange rate of CDN$1.0000 equals US$0.7686.

 

 

F-7
 

 

ETHEMA HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.  Summary of significant accounting policies (continued)

 

c) Business Combinations

 

The Company allocates the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed 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, 2023 and 2022.

 

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

 

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, Contractual and Other Discounts

 

The Company derives the majority of its revenues from commercial payors at in-network rates. The Company recognizes revenue based on historical collections received from healthcare providers, recognizing only a percentage of revenues actually billed. Effectively recognizing revenue net of any expected billing differentials. Based on the Company’s collection experience, the percentage of revenue recognized is adjusted on a periodic basis, thereby taking into account expected credit losses in the revenue recognition process. The revenue we recognize is already net of expected credit losses, therefore management does not maintain a separate allowance for doubtful accounts, contractual and other discounts.

  

Management also takes into consideration the age of accounts, creditworthiness and current economic trends when evaluating the percentage of revenue to be recognized.

 

g) Leases

 

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

 

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

 

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

 

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.

F-8
 

ETHEMA HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

  

2.  Summary of significant accounting policies (continued)

 

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.

   

k)  Leases

 

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

 

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, withholding taxes payable, convertible notes payable, loans payable and related party notes.

 

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

 

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

 

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

 

The Company measures its convertible debt and 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.

 

F-9
 

 

ETHEMA HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.  Summary of significant accounting policies (continued)

 

n)  Related parties

 

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

 

o)  Revenue recognition

 

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

 

The Company’s provision for doubtful accounts are recorded as a direct reduction to revenue instead of being presented as a separate line item on the 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 were $313,338 and $337,074 at December 31, 2023 and December 31, 2022, respectively. Management believes that these receivables are properly stated and are not likely to be settled for a significantly different amount.

 

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

 

  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.

 

  

F-10
 

 

ETHEMA HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.  Summary of significant accounting policies (continued)

 

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 2019, through 2021 are subject to audit or review by the US tax authorities, whereas fiscal 2011 through 2021 are subject to audit or review by the Canadian tax authority.

  

q) Net income per Share

 

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

 

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

 

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

 

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, 2023 and 2022 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.

 

 

F-11
 

 

ETHEMA HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.  Summary of significant accounting policies (continued)

 

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, 2023 and 2022.

 

  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.

 

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

 

  ii. Liquidity risk

 

Liquidity risk is the risk the Company will not be able to meet its financial obligations as they fall due. The Company is exposed to liquidity risk through its working capital deficiency of approximately $7.9 million, and an accumulated deficit of approximately $42.4 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. In the opinion of management, liquidity risk is assessed as high, material and remains unchanged from that of the prior year.

 

  iii. Market risk

 

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

 

  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, short term loans, third party loans and government assistance loans as of December 31, 2023. In the opinion of management, interest rate risk is assessed as moderate.

 

  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. In the opinion of management, currency risk is assessed as low, material and remains unchanged from that of the prior year.

 

  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. In the opinion of management, the Company is not exposed to this risk and remains unchanged from the prior year.

   

t)  Recent accounting pronouncements

 

The Financial Accounting Standards Board (“FASB”) issued additional updates during the year ended December 31, 2023. 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.

 

 

F-12
 

 

ETHEMA HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

3. Going concern

 

The Company’s consolidated financial statements have been prepared in accordance with US GAAP applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations in the normal course of business. At December 31, 2023, the Company has a working capital deficiency of $7.4 million, and total liabilities in excess of assets in the amount of $6.2 million . Management believes that current available resources will not be sufficient to fund the Company’s planned expenditures over the next 12 months. Accordingly, the Company will be dependent upon the raising of additional capital through placement of common shares, and/or debt financing in order to implement its business plan and generating sufficient revenue in excess of costs. If the Company raises additional capital through the issuance of equity securities or securities convertible into equity, stockholders will experience dilution, and such securities may have rights, preferences or privileges senior to those of the holders of common stock or convertible senior notes. If the Company raises additional funds by issuing debt, the Company may be subject to limitations on its operations, through debt covenants or other restrictions. If the Company obtains additional funds through arrangements with collaborators or strategic partners, the Company may be required to relinquish its rights to certain geographical areas, or techniques that it might otherwise seek to retain. There is no assurance that the Company will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on the Company’s financial condition. These 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. Disposal of subsidiaries

 

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

 

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

 

The assets and liabilities disposed of were as follows:

  

   Net book value
Assets     
Other receivable  $12,015 
Property and equipment   2,420,499 
    2,432,514 
Liabilities     
Accounts payable and accrued liabilities   (196,859)
Government assistance loans   (45,317)
Mortgage loan   (3,525,223)
    (3,767,399)
      
Disposal of subsidiary to related party – recorded as additional paid in capital  $(1,334,885)

 

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

 

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

 

F-13
 

 ETHEMA HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

4.Disposal of subsidiaries (continued)

 

On December 30, 2022, the Company entered into two agreements whereby it sold Greenstone Muskoka and ARIA to the Company Chairman and CEO for gross proceeds of $0.

 

Immediately prior to the disposal of these subsidiaries, 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.

 

The Company also assumed the liability to pay for the Government assistance loan of $50,073.

 

The assets and liabilities disposed of were as follows:

   Greenstone Muskoka  ARIA  Net book value
Assets               
Cash  $382   $1,038   $1,420 
    382    1,038    1,420 
                
Liabilities               
Accounts payable and accrued liabilities         134,795    134,795 
Payroll taxes   134,812          134,812 
Income taxes payable   360,380          360,380 
    495,192    134,795    629,987 
                
Net liabilities sold   494,810    133,757    628,567 
Net proceeds realized                  
Gain on disposal booked as adjustment to paid in capital  $494,810   $133,757   $628,567 

  

5. Property and equipment

  

Acquisition and simultaneous disposition of property

 

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

 

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

 

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

 

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

 

The Company paid gross proceeds of $1,449,000 to Leonite Capital and Leonite Fund I, LP in settlement of all amounts outstanding to both entities, disclosed in notes 9 and 10 below. In addition, $65,450 was paid to Ed Blasiak to settle the convertible promissory note disclosed in note 9 below, $179,474 was paid to Joshua Bauman to settle the convertible promissory note disclosed in note 9 below, and $260,548 was paid to Mirage Realty, LLC to settle the senior secured promissory note, disclosed in note 10 below.

 

 

F-14
 

 

ETHEMA HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

  

5.Property and equipment (continued)

  

Acquisition and simultaneous disposition of property (Continued)

  

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

 

   Amount
Purchase of 950 Evernia Street property     
Purchase price  $5,500,000 
Fees and expenses related to property purchase   109,276 
Total acquisition cost   5,609,276 
      
Proceeds on sale   8,500,000 
Fees and expenses related to disposal of the property   (406,552)
 Net proceeds on disposal of property   8,093,448 
      
Gain on sale of property  $2,484,172 

 

Property and equipment consists of the following:  

  

   December 31,
2023
  December 31, 2022
   Cost  Accumulated depreciation  Net book value  Net book value
Land  $     $     $     $158,742 
Property                     2,310,448 
Leasehold improvements   459,439    (88,131)   371,308    373,320 
Furniture and fittings   152,234    (47,519)   104,715    92,941 
Vehicles   55,949    (29,060)   26,889    38,079 
Computer equipment   7,525    (2,036)   5,489    865 
   $675,147   $(166,746)  $508,401   $2,974,395 

 

Depreciation expense for the year ended December 31, 2023 and 2022 was $140,939 and $182,139, respectively.

 

6.  Intangibles

 

Intangible assets consist 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:  

 

                         
   December 31,
2023
  December 31, 2022
   Cost  Accumulated amortization  Net book value  Net book value
Health care Provider license  $1,789,903   $(894,951)  $894,952   $125,293 
                     

 

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 $357,981 in amortization expense for finite-lived assets for the years ended December 31, 2023 and 2022.

  

Estimated future amortization expense is as follows: 

Estimated future amortization expense

      Amount  
2024     $ 357,981  
2025       357,981  
2026       178,990  
Total estimated amortization expense     $ 894,952  

 

 

F-15
 

 

ETHEMA HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

7. Leases

 

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

 

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

 

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

 

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

 

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

 

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

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

 

   December 31,
2023
  December 31,
2022
Non-current assets          
Right-of-use assets – finance leases, net of depreciation, included in Property and equipment  $24,901   $38,079 
Right-of-use assets - operating leases, net of amortization  $9,323,723   $1,393,071 

  

Lease costs consists of the following: 

 

              
   Year ended December 31,
   2023  2022
 Finance lease cost:          
Amortization of right-of-use assets  $11,190   $11,190 
Interest expense on finance lease liabilities   1,938    2,443 
    13,128    13,633 
           
Operating lease cost  $598,336   $400,207 
Lease cost  $611,464   $413,840 

 

Other lease information: 

 

              
   Year ended December 31,
   2023  2022
Cash paid for amounts included in the measurement of lease liabilities      
Operating cash flows from finance leases  $(1,938)  $(2,443)
Operating cash flows from operating leases   (600,299)   (380,545)
Financing cash flows from finance leases   (7,891)   (7,437)
Cash paid for amounts included in the measurement of lease liabilities  $(610,127)  $(390,425)
           
Weighted average lease term – finance leases   2 years and ten months    3 years and ten months 
Weighted average remaining lease term – operating leases   19 years and 8 months    4 years and 1 months 
           
Discount rate – finance leases   6.60%   6.60%
Discount rate – operating leases   7.7%   4.64%

 

 

F-16
 

 

ETHEMA HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

7.Leases (continued)

 

Maturity of Leases

 

Finance lease liability

 

The amount of future minimum lease payments under finance leases as of December 31, 2023 is as follows:

 

    Amount
2024   $ 9,829  
2025     9,829  
2026     6,195  
2027      1,707  
      27,560  
Imputed interest     (2,659)  
Total finance lease liability   $ 24,901  
Disclosed as:        
Current portion   $ 8,426  
Non-Current portion     16,475  
Lease liability   $ 24,901  

 

Operating lease liability

 

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

 

    Amount
     
2023   $ 754,857  
2024     775,615  
2025     796,945  
2026     818,861  
2027 and thereafter     16,200,042  
Total undiscounted minimum future lease payments     19,346,320  
Imputed interest     (9,924,200 )
Total operating lease liability   $ 9,422,120  
         
Disclosed as:        
Current portion   $ 38,563  
Non-Current portion     9,383,557  
 Lease liability   $ 9,422,120  

  

8. Taxes Payable

 

Taxes payable consist of:

 

   December 31,
2023
  December 31,
2022
       
HST/GST payable         74,134 
Income tax payable         174,510 
   $     $248,644 

 

On June 30, 2023, the Company entered into an exchange agreement with Leonite Capital, LLC, whereby it exchanged the 400,000 Series B shares with a value of $400,000 plus accrued dividends thereon of $61,184 for its entire shareholding in its property owning subsidiary, Cranberry Cove Holdings. The HST/GST payable was settled prior to disposal.

 

The income tax provision raised in previous years was reversed in the current year upon filing the tax returns with no taxation payable.

 

 

F-17
 

 

ETHEMA HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

9.  Short-term Convertible Notes

 

The short-term convertible notes consist of the following:

  

    Interest rate   Maturity Date   Principal   Interest   December 31, 2023   December 31, 2022
Leonite Capital, LLC     12.0 %   On Demand    $         $         $         $ 184,749  
                                             
Leonite Fund I, LP     Variable     March 1, 2023                                720,830  
                                             
Auctus Fund, LLC     0.0 %   On Demand     70,000                70,000       80,000  
                                             
Labrys Fund, LP     12.0 %   On Demand                                8,826  
                                             
Ed Blasiak     6.5 %   On Demand                                63,322  
                                             
Joshua Bauman     11.0 %   October 21, 2022                                169,710  
      10.0 %   August 9, 2024     120,776       990       121,766           
                                             
Series N convertible notes     6.0 %   On Demand     3,229,000       999,161       4,228,161       4,041,813  
                                             
                 $ 3,419,776      $ 1,000,151     $ 4,419,927     $ 5,269,250  

   

Leonite Capital, LLC

 

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

 

On February 28, 2022, in terms of a conversion notice, Leonite converted the principal sum of $149,250 of the Leonite Note into 150,000,000 shares of common stock at a conversion price of $0.0010 per share.

 

On March 1, 2023, the Company entered into a forbearance agreement with Leonite whereby the parties agreed to extend the maturity date of the note to June 8, 2023, the Company will continue to pay interest on the note, until repaid. On August 4, 2023, the Company settled all outstanding liabilities owing to Leonite Capital and Leonite Fund I, LP, for gross proceeds of $1,449,000.

 

Leonite Fund I, LP

 

Effective June 1, 2022, the Company entered into a Note Exchange Agreement whereby the convertible promissory notes entered into with Labrys Fund LP on May 7, 2021, with an outstanding principal balance of $341,000, and on June 2, 2021, with an outstanding principal balance of $230,000 and accrued interest thereon of $25,300, were exchanged for a new Senior Secured Convertible Promissory note in the principal amount of $745,375, including an OID of $149,075. The Note matured on March 1, 2023, and bore interest at the minimum of 10% per annum or the Wall Street Journal quoted prime rate plus 5.75%.

 

Interest is payable monthly and the note may be prepaid with a prepayment penalty of 10%. The note is convertible into common stock at a fixed conversion price of $0.01 per share, subject to anti-dilution adjustments and a fundamental transaction clause allowing the note holder to receive the same consideration as common stockholders would receive.

 

The convertible note is secured by all of the assets of Ethema Health Corporation and Addiction Recovery Institute of America, LLC.

 

On March 1, 2023, the Company entered into a forbearance agreement with Leonite whereby the parties agreed to extend the maturity date of the note to June 8, 2023, the Company will continue to pay interest on the note, until repaid. On August 4, 2023, the Company settled all outstanding liabilities owing to Leonite Capital and Leonite fund I, L.P. for gross proceeds of $1,449,000.

 

 

 

F-18
 

 

ETHEMA HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

  

9.  Short-term Convertible Notes (continued)

 

Auctus Fund, LLC

 

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

 

On June 15, 2020, The Company entered into an amended agreement with Auctus whereby 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. The note matured May 7, 2020, Auctus Fund LLC has not declared a default and we are in discussion with the lender on settling the note.

 

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 in constant discussion with the lender on settling the note. 

 

Ed Blasiak

 

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

 

The note had matured and was in technical default which had not been formally declared by Ed Blasiak. On August 4, 2023, the Company settled the senior secured convertible promissory note owing to Ed Blasiak for proceeds of $65,450.

 

Joshua Bauman

 

On October 21, 2021, the Company entered into a Securities Purchase Agreement with Bauman, pursuant to which the Company issued a senior secured convertible promissory note in the aggregate principal amount of $150,000, including an original issue discount of $16,250. The note bears interest at 11.0% per annum, which is guaranteed and earned in full on issue date and matured on October 21, 2022. 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 had matured and was in technical default which had not been formally declared by Mr. Bauman. On August 4, 2023, the Company settled the senior secured convertible promissory note owing to Mr. Bauman for proceeds of $179,474.

 

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.

 

During November 2023 and December 2023, the company repaid $29,224 and $4,597 in principal and interest, respectively.

 

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 series N convertible notes matured and are in default. The Company is considering its options to settle these notes.

 

 

 

F-19
 

 

ETHEMA HEALTH CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

  

10. Short-term Notes

 

Leonite Capital, LLC

 

Secured Promissory Notes  

 

On March 1, 2022, the Company entered into a secured Promissory Note in the aggregate principal amount of $124,000 for net proceeds of $100,000 after an original issue discount of $24,000. Due to the failure to repay the note by due date, a penalty of $37,200 was added to the principal outstanding and the Company incurs a monthly monitoring fee of $2,000 per month. In addition the note earns interest at a default rate of 24% per annum on the total balance outstanding, including the monthly monitoring fee and accrued interest.

 

The Note had a maturity date of April 1, 2022. On August 4, 2023, the Company settled all outstanding liabilities owing to Leonite Capital and Leonite fund I, L.P. for gross proceeds of $1,449,000.

 

On May 3, 2022, the Company, entered into a secured Promissory Note in the aggregate principal amount of $76,250 for net proceeds of $61,000 after an original issue discount of $15,250. Due to the failure to repay the note by due date, a penalty of $22,875 was added to the principal outstanding and the Company incurs a monthly monitoring fee of $2,000 per month. In addition the note earns interest at a default rate of 24% per annum on the total balance outstanding, including the monthly monitoring fee and accrued interest.

 

The Note had a maturity date of June 17, 2022. On August 4, 2023, the Company settled all outstanding liabilities owing to Leonite Capital and Leonite fund I, L.P. for gross proceeds of $1,449,000.

  

Mirage Realty, LLC

 

On March 15, 2023, the Company, entered into a senior secured Promissory Note in the aggregate principal amount of $250,000 for net proceeds of $223,500 after an original issue discount and fees of $26,500. The note earns interest at 10% per annum and matures on July 15, 2023

 

On August 4, 2023, the Company settled the senior secured promissory note owing to Mirage Realty for gross proceeds of $260,548.

 


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

 

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. The balance outstanding at December 31, 2023 was $129,184 (CDN$170,859).

 

Third Party Note

 

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

 

During April and May 2023, the Company made interest repayments of CDN$35,000 (approximately $25,970) on the third party loan. Between August 9 and August 10, 2023, the Company made principal repayments of CDN$345,890 ($257,775) and interest repayments of CDN$104,110 (approximately $77,515). As of December 31, 2023 the balance of principal and interest outstanding on third party loans was CDN$416,709 (approximately $315,068). 

   

11.  Mortgage loans

 

Mortgage loans is disclosed as follows:

 

    Interest 
rate
    Maturity date     Principal 
Outstanding
    Accrued 
interest
    December 31,
2023
    December 31,
2022
 
 Cranberry Cove Holdings, Ltd.                             
Pace Mortgage &