UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
or
For the transition period from to
Commission
File Number
(Exact Name of Registrant as Specified in its Charter)
| (State or other jurisdiction
of incorporation or organization) |
(I.R.S. employer Identification No.) | |
| Address of Principal Executive Offices | Zip Code |
(
Registrant’s Telephone Number, Including Area Code
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | |||
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Number of shares of common stock outstanding as of November 14, 2024 was .
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In particular, statements contained in this Quarterly Report on Form 10-Q, including but not limited to, statements regarding the sufficiency of our cash, our ability to finance our operations and business initiatives and obtain funding for such activities; our future results of operations and financial position, business strategy and plan prospects, or costs and objectives of management for future acquisitions, are forward looking statements. These forward-looking statements relate to our future plans, objectives, expectations and intentions and may be identified by words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “seeks,” “goals,” “estimates,” “predicts,” “potential” and “continue” or similar words. Readers are cautioned that these forward-looking statements are based on our current beliefs, expectations and assumptions and are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed, projected or implied in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.
NOTE REGARDING COMPANY REFERENCES
Throughout this Quarterly Report on Form 10-Q, “Ethema,” the “Company,” “we,” “us” and “our” refer to Ethema Health Corporation.
FORM 10-Q
ETHEMA HEALTH CORPORATION
TABLE OF CONTENTS
ETHEMA HEALTH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
| September
30, 2024 | December 31, 2023 | |||||||
| ASSETS | (Unaudited) | |||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Non-current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Right of use assets | ||||||||
| Deposits paid | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Convertible notes, net of discounts | ||||||||
| Short-term notes | ||||||||
| Promissory note | ||||||||
| Receivables funding, net | ||||||||
| Related party advance, net | ||||||||
| Government assistance loans | ||||||||
| Operating lease liability | ||||||||
| Finance lease liability | ||||||||
| Related party payables | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities | ||||||||
| Convertible notes, net of discounts | ||||||||
| Promissory note | ||||||||
| Government assistance loans | ||||||||
| Operating lease liability | ||||||||
| Finance lease liability | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Preferred stock - Series B; $ par value authorized, issued and outstanding as of September 30, 2024 and December 31, 2023. | ||||||||
| Stockholders’ deficit | ||||||||
| Preferred stock - Series A; $ par value, authorized, and shares issued and outstanding as of September 30, 2024 and December 31, 2023 | ||||||||
| Common stock - $ par value, shares authorized; and shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Discount for shares issued below par value | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 1 |
ETHEMA HEALTH CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
| Three
months ended September 30, 2024 | Three
months ended September 30, 2023 | Nine
months ended September 30, 2024 | Nine
months ended September 30, 2023 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Operating expenses | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Rent expense | ||||||||||||||||
| Management fees | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Salaries and wages | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating (loss) income | ( | ) | ( | ) | ||||||||||||
| Other Income (expense) | ||||||||||||||||
| Other income | ||||||||||||||||
| Other expense | ( | ) | ( | ) | ||||||||||||
| Penalty on convertible debt | ( | ) | ||||||||||||||
| Extension fee – property purchase | ( | ) | ||||||||||||||
| Gain on disposal of property | ||||||||||||||||
| Loss on debt extinguishment | ( | ) | ( | ) | ||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amortization of debt discount | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Foreign exchange movements | ( | ) | ( | ) | ( | ) | ||||||||||
| Net (loss) income before income taxes | ( | ) | ( | ) | ||||||||||||
| Income taxes | ||||||||||||||||
| Net (loss) income | ( | ) | ( | ) | ||||||||||||
| Net loss (income) attributable to non-controlling interest | ( | ) | ( | ) | ||||||||||||
| Net (loss) income allocable to Ethema Health Corporation Stockholders | ( | ) | ( | ) | ||||||||||||
| Preferred stock dividend | ( | ) | ||||||||||||||
| Net (loss) income available to common shareholders of Ethema Health Corporation | ( | ) | ( | ) | ||||||||||||
| Accumulated other comprehensive income | ||||||||||||||||
| Foreign currency translation adjustment | ||||||||||||||||
| Total comprehensive (loss) income | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| (Loss) income per share | ||||||||||||||||
| Basic | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Diluted | ( | ) | ( | ) | ||||||||||||
| (Loss) income per share | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Weighted average common shares outstanding | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
| 2 |
ETHEMA HEALTH CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
| Series A Preferred | Common | Additional paid-in | Discount to | Accumulated other Comprehensive | Accumulated | Non-controlling shareholders | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | par value | Income | Deficit | interest | Total | |||||||||||||||||||||||||||||||
| Balance as of December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||||
| Acquisition of minority shareholders interest | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance as of June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Conversion of related party payables to equity | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2024 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Series A Preferred | Common | Additional paid-in | Discount to | Accumulated other Comprehensive | Accumulated | Non-controlling shareholders | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | par value | Income | Deficit | interest | Total | |||||||||||||||||||||||||||||||
| Balance as of December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||
| Foreign currency translation | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Dividends accrued | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||
| Disposal of subsidiary to related party | — | — | ( | ) | ||||||||||||||||||||||||||||||||||||
| Deemed extinguishment of debt by related party | — | — | ||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | — | — | ||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ||||||||||||||||||||||||||||||||||||
| Dividends accrued | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||||
| Fair value of warrants issued for debt extinguishment | — | — | ||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | ||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2023 | $ | $ | ( | ) | $ | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 3 |
ETHEMA HEALTH CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
| Nine
months ended September 30, 2024 | Nine
months ended September 30, 2023 | |||||||
| Operating activities | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustment to reconcile net (loss) income to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of debt discount | ||||||||
| Non-cash management fee | ||||||||
| Amortization of right of use asset | ||||||||
| Gain on disposal of property | ( | ) | ||||||
| Loss on debt extinguishment | ||||||||
| Penalty on convertible promissory notes | ||||||||
| Deferred tax movement | ( | ) | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ||||||
| Taxes payable | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing activities | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Proceeds on disposal of property | ||||||||
| Acquisition of business | ( | ) | ||||||
| Acquisition of minority shareholders interest | ( | ) | ||||||
| Deposits paid | ( | ) | ( | ) | ||||
| Net cash used in (provided by) investing activities | ( | ) | ||||||
| Financing activities | ||||||||
| Repayment of mortgage loans | ( | ) | ||||||
| Proceeds from convertible notes | ||||||||
| Repayment of convertible notes | ( | ) | ||||||
| Proceeds from short-term notes | ||||||||
| Repayment of short-term notes | ( | ) | ( | ) | ||||
| Repayment of promissory note | ( | ) | ||||||
| Repayment of government assistance loans | ( | ) | ( | ) | ||||
| Repayment of third-party loans | ( | ) | ||||||
| Repayment of finance leases | ( | ) | ( | ) | ||||
| Proceeds from receivables funding | ||||||||
| Repayment of receivables funding | ( | ) | ( | ) | ||||
| Proceeds from related party advance | ||||||||
| Repayment of related party advance | ( | ) | ||||||
| Repayment of related party notes | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Effect of exchange rate changes on cash | ( | ) | ||||||
| Net change in cash | ( | ) | ( | ) | ||||
| Beginning cash balance | ||||||||
| Ending cash balance | $ | $ | ||||||
| Supplemental cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Non-cash investing and financing activities | ||||||||
| Promissory note issue on acquisition of minority shareholders interest | $ | $ | ||||||
| Conversion of related party payable to common stock | $ | $ | ||||||
| Conversion of related party payable to Series A preferred stock | $ | $ | ||||||
| Disposal of subsidiary to related party | $ | $ | ||||||
| Deemed extinguishment of debt by related party | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
| 4 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of business
Since 2010, the Company has operated addiction treatment centers. Initially the Company operated an addiction treatment center in Ontario Canada under its Greenestone Muskoka clinic, which was sold on February 14, 2017. Simultaneously with this sale the Company purchased buildings and operated an addiction treatment center in Delray Beach Florida under its Addiction recovery Institute of America subsidiary with a license obtained in December 2016, initially through owned properties in Delray Beach and subsequently through leased properties in West Palm Beach, Florida. Since June 30, 2020, the Company has been actively involved in the management of a treatment center operated by Evernia in West Palm Beach Florida. On July 1, 2021, the Company closed on the acquisition of 75% of ATHI, which owns 100% of Evernia, once the probationary approval of a license was obtained from the Department of Children and Family Services of Florida. The Company’s operations are currently conducted through its Evernia West Palm Beach facility and operations are expected to commence in its Boca Raton facility as soon as the facility is approved for patient intake by insurers, which approval is expected in the fourth quarter of 2024.
The Company sold its real estate on which its Greenstone Muskoka clinic operated during the prior year.
Acquisition of minority shareholders interest in ATHI
On May 15, 2024, the Company entered into a Stock Purchase Agreement whereby it acquired the remaining 25% of ATHI representing 5,000,000 shares from the minority shareholder for gross proceeds of $1,100,000. The Company paid an initial deposit of $25,000 and on closing an additional $600,000. The Company issued a non-interest-bearing promissory note for the remaining balance of $475,000, which promissory note is repayable in installments of $10,000 a month on each monthly anniversary date of the agreement for months one to eight (eight installments) and months ten through seventeen (eight installments), and payments of $157,500 on month nine and month eighteen, for a total of $475,000.
Acquisition of assets and assignment of lease and sub-lease for Boca cove Detox Center
On March 22, 2024, the Company executed a LOI to acquire certain assets, including furniture, equipment inventory and supplies of Boca Cove Detox, LLC, along with the assignment of lease and sub-lease for premises located at 899 Meadow Avenue, Boca Raton, Florida. On May 1, 2024 the Company, through its subsidiary Evernia Health Center LLC, entered into a Definitive Agreement whereby the Company would assume the lease for suites 100,101, 201, 202 and 203 located at 899 Meadows Road, Boca Raton, Florida (the “Leased Premises”) and the furniture, fixtures and equipment located therein, upon the assignment of the lease from the property owner. The lease was assigned on June 10, 2024 and the Company entered into a Bill of Sale to give effect to the Definitive Agreement.
The purchase price was $240,000 which was settled by a deposit of $20,000 and a cash payment of $220,000 and the payment to the Seller of $83,393 for the assumption of the security deposit held by the landlord of the Leased Premises located at 899 Meadows Road.
2. Summary of significant accounting policies
Financial Reporting
The (a) unaudited condensed consolidated balance sheets as of September 30, 2024, and as of December 31, 2023, which has been derived from audited consolidated financial statements, and (b) the unaudited condensed consolidated statements of operations, stockholders’ deficit and cash flows of the Company, have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of results that may be expected for the year ending December 31, 2024. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (“SEC”) on May 7, 2024.
All amounts referred to in the notes to the unaudited condensed consolidated financial statements are in United States Dollars ($) unless stated otherwise.
a) Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
| 5 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of significant accounting policies (continued)
b) Principles of consolidation and foreign translation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and all of its subsidiaries. All intercompany transactions and balances have been eliminated on consolidation.
In the prior year, certain of the Company’s subsidiaries functional currency was the Canadian dollar, while the Company’s reporting currency is the U.S. dollar. All transactions initiated in Canadian dollars are translated into US dollars in accordance with ASC 830, “Foreign Currency Translation” as follows:
| ● | Monetary assets and liabilities at the rate of exchange in effect at the balance sheet date. |
| ● | Certain non-monetary assets and liabilities and equity at historical rates. |
| ● | Revenue and expense items and cash flows at the average rate of exchange prevailing during the year. |
Adjustments arising from such translations are deferred until realization and are included as a separate component of stockholders’ deficit as a component of accumulated other comprehensive income or loss. Therefore, translation adjustments are not included in determining net income (loss) but reported as other comprehensive income (loss).
For foreign currency transactions, the Company translates these amounts to the Company’s functional currency at the exchange rate effective on the invoice date. If the exchange rate changes between the time of purchase and the time actual payment is made, a foreign exchange transaction gain or loss results which is included in determining net income for the year.
On June 30, 2023, the Company disposed on Cranberry Cove Holdings whose functional currency was Canadian Dollars, all remaining subsidiaries have the U.S. dollar as a functional currency.
The relevant translation rates for the prior year were as follows: For the six months ended June 30, 2023, a closing rate of CDN$1 equals
US$0.7553 and an average exchange rate of CDN$1 equals US$0.7420.
c) Cash and cash equivalents
For purposes of the statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. The Company maintains cash and cash equivalents with several financial institutions in the USA and Canada. There were no cash equivalents at September 30, 2024 and December 31, 2023.
The
Company primarily places cash balances in the USA with high-credit quality financial institutions located in the United States which
are insured by the Federal Deposit Insurance Corporation up to a limit of $
d) Accounts receivable
Accounts receivable primarily consists of amounts due from third-party payors (non-governmental) and private pay patients and is recorded net of allowances for doubtful accounts and contractual discounts. The Company’s ability to collect outstanding receivables is critical to its results of operations and cash flows. Accordingly, accounts receivable reported in the Company’s unaudited condensed consolidated financial statements is recorded at the net amount expected to be received. The Company’s primary collection risks are (i) the risk of overestimating net revenues at the time of billing that may result in the Company receiving less than the recorded receivable, (ii) the risk of non-payment as a result of commercial insurance companies denying claims, (iii) the risk that patients will fail to remit insurance payments to the Company when the commercial insurance company pays out-of-network claims directly to the patient, (iv) resource and capacity constraints that may prevent the Company from handling the volume of billing and collection issues in a timely manner, (v) the risk that patients do not pay the Company for their self-pay balances (including co-pays, deductibles and any portion of the claim not covered by insurance) and (vi) the risk of non-payment from uninsured patients.
| 6 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of significant accounting policies (continued)
e) Allowance for credit losses, Contractual and Other Discounts
The Company recognizes revenue based on historical collections received from healthcare providers, recognizing only a percentage of revenues actually billed. Effectively recognizing revenue net of any expected billing differentials. Based on the Company’s collection experience, the percentage of revenue recognized is adjusted on a periodic basis, thereby considering expected credit losses in the revenue recognition process. The revenue the Company recognizes is already net of expected credit losses.
The Company constantly evaluates its collections experience and consider the market conditions and current economic developments facing the Company’s operations.
The Company has not experienced significantly different collections to revenues it has recognized and it has not seen any deterioration in the payment patterns from the healthcare providers that the Company works with, the Company cannot predict with any certainty that the payment patterns the Company experiences may change and the Company may be required to adjust the percentage of revenue recognized.
f) Leases
The Company accounts for leases in terms of ASC 842. In terms of ASC 842, the Company assesses whether any asset-based leases entered into for periods longer than twelve months meet the definition of financial leases or operation leases, by evaluating the terms of the lease, including the following; the duration of the lease; the implied interest rate in the lease; the cash flows of the lease; and whether the Company intends to retain ownership of the asset at the end of the lease term.
Leases which imply that the Company will retain ownership at the end of the lease term are classified as financial leases, are included in property and equipment with a corresponding financial liability raised at the date of lease inception. Interest incurred on financial leases are expensed using the effective interest rate method.
Leases which imply that the Company will not acquire the asset at the end of the lease term are classified as operating leases, the Company’s right to use the asset is reflected as a non-current right of use asset with a corresponding operational lease liability raised at the date of lease inception. The right of use asset and the operational lease liability are amortized over the right of use period using the effective interest rate implied in the operating lease agreement.
g) Property and equipment
Property and equipment is recorded at cost. Depreciation is calculated on the straight-line basis over the estimated life of the asset.
h) Long Lived Assets
The Company evaluates the carrying value of its long-lived assets for impairment by comparing the expected undiscounted future cash flows of the assets to the net book value of the assets when events or circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. If the expected undiscounted future cash flows are less than the net book value of the assets, the excess of the net book value over the estimated fair value will be charged to earnings.
Fair value is based upon discounted cash flows of the assets at a rate deemed reasonable for the type of asset and prevailing market conditions, appraisals, and, if appropriate, current estimated net sales proceeds from pending offers.
i) Intangible assets
Intangible assets are stated at acquisition cost less accumulated amortization, if applicable, less any adjustments for impairment losses.
Amortization is charged on a straight-line basis over the estimated remaining useful lives of the individual intangibles. Where intangibles are deemed to be impaired the Company recognizes an impairment loss measured as the difference between the estimated fair value of the intangible and its book value.
Licenses to provide substance abuse rehabilitation services are amortized over the expected life of the contract, including any anticipated renewals. The Company expects its licenses to remain in operation for a period of five years.
| 7 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of significant accounting policies (continued)
j) Derivatives
The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If applicable, the Company uses a Black Scholes Option Pricing model to estimate the fair value of derivatives such as variable debt conversion features, at the end of each applicable reporting period. Changes in the fair value of derivatives are included in the statements of operations, for each reporting period. Inputs into the Black Scholes Option Pricing model require estimates, including such items as estimated volatility of the Company’s stock, risk free interest rate and the estimated life of the financial instruments being fair valued.
k) Financial instruments
The Company initially measures its financial assets and liabilities at fair value. The Company subsequently measures all its financial assets and financial liabilities at amortized cost.
Financial assets measured at amortized cost include cash and accounts receivable.
Financial liabilities measured at amortized cost include bank indebtedness, accounts payable and accrued liabilities, harmonized sales tax payable, withholding taxes payable, convertible notes payable, loans payable and related party notes.
Financial assets measured at cost are tested for impairment when there are indicators of impairment. The amount of the write-down is recognized in the Unaudited Condensed Consolidated Statement of Operations and Comprehensive (Loss) 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 the Unaudited Condensed Consolidated Statement of Operations and Comprehensive (Loss) Income. The Company recognizes its transaction costs in the Unaudited Condensed Consolidated Statement of Operations and Comprehensive (Loss) Income in the period incurred. However, financial instruments that will not be subsequently measured at fair value are adjusted by the transaction costs that are directly attributable to their origination, issuance or assumption.
FASB ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. ASC 820 establishes a three- tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
| ● | Level 1. Observable inputs such as quoted prices in active markets; |
| ● | Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and |
| ● | Level 3. Unobservable inputs in which there is little or no market data, which requires the reporting entity to develop its own assumptions. |
The Company measures its convertible debt and derivative liabilities associated therewith at fair value. These liabilities are revalued periodically and the resultant gain or loss is realized through the Unaudited Condensed Consolidated Statement of Operations and Comprehensive Loss.
l) Related parties
Parties are considered to be related to the Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions are recorded at fair value of the goods or services exchanged.
| 8 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of significant accounting policies (continued)
m) Revenue recognition
ASC 606 requires companies to exercise more judgment and recognize revenue using a five-step process.
The Company’s provision for doubtful accounts are recorded as a direct reduction to revenue instead of being presented as a separate line item on the unaudited condensed consolidated statements of operations and comprehensive loss.
As the Company’s 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 its patients typically are under no obligation to remain admitted in its facilities.
The Company receives payments from the following sources for services rendered in its U.S. Facility: (i) commercial insurers; and (ii) individual patients and clients. As the period between the time of service and time of payment is typically one year or less, the Company elected the practical expedient under ASC 606-10-32-18 and does not adjust for the effects of a significant financing component.
The Company derives a significant portion of its revenue from other payors that receive discounts from established billing rates. The various managed care contracts under which these discounts must be calculated are complex, subject to interpretation and adjustment, and may include multiple reimbursement mechanisms for different types of services provided in the Company’s in-patient facilities and cost settlement provisions. Management estimates the transaction price on a payor-specific basis given its interpretation of the applicable regulations or contract terms. The services authorized and provided and related reimbursement are often subject to interpretation that could result in payments that differ from the Company’s estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular review and assessment of the estimation process by management.
Settlements
with third-party payors are estimated and recorded in the period in which the related services are rendered and are adjusted in future
periods as final settlements are determined. In the opinion of management, adequate provision has been made for any adjustments and final
settlements. However, there can be no assurance that any such adjustments and final settlements will not have a material effect on the
Company’s financial condition or results of operations. The Company’s receivables were $
The Company’s revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those services. The Company derives its revenues from the sale of its services. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its revenue transactions:
| i. | identify the contract with a customer; |
| ii. | identify the performance obligations in the contract; |
| iii. | determine the transaction price; |
| iv. | allocate the transaction price to performance obligations in the contract; and |
| v. | recognize revenue as the performance obligation is satisfied. |
| 9 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of significant accounting policies (continued)
n) Income taxes
The Company accounts for income taxes under the provisions of ASC Topic 740, “Income Taxes”. Under ASC Topic 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income taxes are provided using the liability method. Under this method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The tax basis of an asset or liability is the amount attributed to that asset or liability for tax purposes. The effect on deferred taxes of a change in tax rates is recognized in income in the period of change. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of, the deferred tax assets will not be realized.
ASC Topic 740 contains a two-step approach to recognizing and measuring uncertain tax positions taken or expected to be taken in a tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company recognizes interest and penalties accrued on unrecognized tax benefits within general and administrative expense. To the extent that accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction in general and administrative expenses in the period that such determination is made. The tax returns for fiscal 2019, through 2023 are subject to audit or review by the US tax authorities.
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).
Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award and is recognized as expense over the employee’s requisite service period or vesting period on a straight-line basis. Stock-based compensation expense recognized in the unaudited condensed consolidated statements of operations is based on awards ultimately expected to vest and has been reduced for estimated forfeitures. This estimate will be revised in subsequent periods if actual forfeitures differ from those estimates. The Company has no awards with performance conditions and no awards dependent on market conditions
There were no stock-based compensation awards that vested during the three and nine months ended September 30, 2024 and 2023 and there was no stock-based compensation recorded in the unaudited condensed consolidated financial statements.
| 10 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of significant accounting policies (continued)
q) Financial instruments risks
The Company is exposed to various risks through its financial instruments. The following analysis provides a measure of the Company’s risk exposure and concentrations at the balance sheet dates, September 30, 2024 and December 31, 2023.
| 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 $
| 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.
| 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 September 30, 2024. 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 minimal exposure to certain foreign currency payables and loans.
| 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.
r) Recent accounting pronouncements
The Financial Accounting Standards Board (“FASB”) issued additional updates during the nine months ended September 30, 2024. None of these standards are either applicable to the Company or require adoption at a future date and none are expected to have a material impact on the Company’s unaudited condensed consolidated financial statements upon adoption.
| 11 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Going concern
The
Company’s unaudited condensed consolidated financial statements have been prepared in accordance with US GAAP applicable to a going
concern, which assumes that the Company will be able to meet its obligations and continue its operations in the normal course of business.
At September 30, 2024 the Company has a working capital deficiency of $
The Company will be dependent upon the raising of additional capital through placement of common shares, and/or debt financing in order to implement its business plan and generating sufficient revenue in excess of costs. If the Company raises additional capital through the issuance of equity securities or securities convertible into equity, stockholders will experience dilution, and such securities may have rights, preferences or privileges senior to those of the holders of common stock or convertible senior notes. If the Company raises additional funds by issuing debt, the Company may be subject to limitations on its operations, through debt covenants or other restrictions. If the Company obtains additional funds through arrangements with collaborators or strategic partners, the Company may be required to relinquish its rights to certain geographical areas, or techniques that it might otherwise seek to retain. There is no assurance that the Company will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on the Company’s financial condition. These unaudited condensed consolidated financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.
4. Acquisition of minority shareholders interest in ATHI
On May 15, 2024, the Company entered into a Stock Purchase Agreement whereby it acquired the remaining 25% of ATHI representing 5,000,000 shares from the minority shareholder for gross proceeds of $1,100,000. The Company paid an initial deposit of $25,000 and on closing an additional $600,000. The Company issued a non-interest-bearing promissory note for the remaining balance of $475,000, which promissory note is repayable in installments of $10,000 a month on each monthly anniversary date of the agreement for months one to eight (eight installments) and months ten through seventeen (eight instalments), and payments of $157,500 on month nine and month eighteen, for a total of $475,000.
The acquisition of the minority shareholders interest was accounted for in terms of ASC 810, Consolidation.
| Amount | ||||
| Purchase price | ||||
| Cash | $ | |||
| Promissory note | ||||
| Total | ||||
| Allocation of purchase price | ||||
| Minority shareholders interest | ||||
| Additional paid in capital | ( | ) | ||
| Total | $ | ( | ) | |
5. Acquisition of Boca Cove Detox
On March 22, 2024, the Company executed a LOI to acquire certain assets, including furniture, equipment inventory and supplies of Boca Cove Detox, LLC, along with the assignment of lease and sub-lease for premises located at 899 Meadow Avenue, Boca Raton, Florida. On May 1, 2024 the Company, through its subsidiary Evernia Health Center LLC, entered into a Definitive Agreement whereby the Company would assume the lease for suites 100,101, 201, 202 and 203 located at 899 Meadows Road, Boca Raton, Florida (the “Leased Premises”) and the furniture, fixtures and equipment located therein, upon the assignment of the lease from the property owner. The lease was assigned on June 10, 2024 and the Company entered into a Bill of Sale to give effect to the Definitive Agreement.
The purchase price was $240,000 which was settled by a deposit of $20,000 and a cash payment of $220,000 and the payment to the Seller of $83,393 for the assumption of the security deposit held by the landlord of the Leased Premises located at 899 Meadows Road.
| Amount | ||||
| Purchase price | ||||
| Cash | $ | |||
| Total | ||||
| Allocation of purchase price | ||||
| Property and equipment | ||||
| Deposit assumed on leased premises | ||||
| Total | $ | |||
| 12 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6. Property and equipment
Acquisition of Boca Cove Detox
On May 1, 2024 the Company, through its subsidiary Evernia Health Center LLC, entered into a Definitive Agreement whereby the Company would assume the lease for suites 100,101, 201, 202 and 203 located at 899 Meadows Road, Boca Raton, Florida (the “Leased Premises”) and the furniture, fixtures and equipment located therein, upon the assignment of the lease from the property owner. The lease was assigned on June 10, 2024 and the Company entered into a Bill of Sale to give effect to the Definitive Agreement. The purchase price of the assets was $240,000.
The details of the property purchase and subsequent sale are as follows:
| Amount | ||||
| Purchase of 950 Evernia Street property | ||||
| Purchase price | $ | |||
| Fees and expenses related to property purchase | ||||
| Total acquisition cost | ||||
| Proceeds on sale | ||||
| Fees and expenses related to disposal of the property | ( | ) | ||
| Net proceeds on disposal of property | ||||
| Gain on sale of property | $ | |||
Acquisition of Boca Cove Detox
On
May 1, 2024 the Company, through its subsidiary Evernia Health Center LLC, entered into a Definitive Agreement whereby the Company would
assume the lease for suites 100,101, 201, 202 and 203 located at 899 Meadows Road, Boca Raton, Florida (the “Leased Premises”)
and the furniture, fixtures and equipment located therein, upon the assignment of the lease from the property owner. The lease was assigned
on June 10, 2024 and the Company entered into a Bill of Sale to give effect to the Definitive Agreement. The purchase price of the assets
was $
Property and equipment consists of the following:
| September
30, 2024 |
December 31, 2023 | |||||||||||||||||
Useful lives |
Cost | Accumulated depreciation | Net book value | Net book value | ||||||||||||||
| Leasehold improvements | ( |
) | ||||||||||||||||
| Furniture and fittings | ( |
) | ||||||||||||||||
| Vehicles | ( |
) | ||||||||||||||||
| Computer equipment | ( |
) | ||||||||||||||||
| $ | $ | ( |
) | $ | $ | |||||||||||||
Depreciation
expense for the three months ended September 30, 2024 and 2023 was $
| 7. | Intangibles |
Intangible assets consist of the following:
| Useful lives |
September
30, 2024 |
December 31, 2023 | ||||||||||||||||
| Cost | Accumulated amortization | Net book value | Net book value | |||||||||||||||
| Health care Provider license | $ | $ | ( |
) | $ | $ | ||||||||||||
The Company evaluates intangible assets for impairment on an annual basis during the last month of each year and at an interim date if indications of impairment exist. Intangible asset impairment is determined by comparing the fair value of the asset to its carrying amount with an impairment being recognized only when the fair value is less than carrying value and the impairment is deemed to be permanent in nature.
The Company recorded $
| 13 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 8. | Leases |
The Company acquired ATHI on July 1, 2021, ATHI’s wholly owned subsidiary 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 February 1, 2027.
On October 3, 2022 the Company entered into a purchase and sale agreement with Evernia Station Limited Partnership for the purchase of 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 it would have to pay to borrow on a collateralized basis over a similar term in a similar economic environment (the "incremental borrowing rate" or "IBR").
The Company determined the appropriate IBR by identifying a reference rate and making adjustments that take into consideration financing options and certain lease-specific circumstances. For the reference rate, the Company used the Fannie Mae, in excess of $3,000,000 rate based on an 80% value to loan ratio, averaging the 15- and 30-year indicative rates, resulting in a rate of 7.70%. The Company determined that 7.70% per annum was an appropriate incremental borrowing rate to apply to its real estate operating lease.
The present value of the future minimum lease payments was valued at $9,333,953 on August 4, 2023.
| 14 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Leases (continued)
On May 1, 2024 the Company, through its subsidiary Evernia Health Center LLC, entered into a Definitive Agreement whereby the Company would assume the lease for suites 100,101, 201, 202 and 203 located at 899 Meadows Road, Boca Raton, Florida (the “Leased Premises”) and the furniture, fixtures and equipment located therein, upon the assignment of the lease from the property owner. The lease was assigned on June 10, 2024 and the Company entered into a Bill of Sale to give effect to the Definitive Agreement.
The purchase price was $240,000 which was settled by a deposit of $20,000 and a cash payment of $220,000 and the payment to the Seller of $83,393 for the assumption of the security deposit held by the landlord of the Leased Premises located at 899 Meadows Road.
The assigned lease has a remaining term of 3 years, expiring on June 30, 2027, with an initial monthly lease cost of $21,843 from July 1, 2024 to December 31, 2024, escalating by 2.9% per annum, each annual period being a calendar year.
To determine the present value of minimum future lease payments for operating leases at June 10, 2024, the Company was required to estimate a rate of interest that it would have to pay to borrow on a collateralized basis over a similar term in a similar economic environment (the "incremental borrowing rate" or "IBR").
The Company determined the appropriate IBR by identifying a reference rate and making adjustments that take into consideration financing options and certain lease-specific circumstances. For the reference rate, the Company used the Bank rate 3/1 adjustable-rate mortgage which represents the average rate for several mortgage lenders in the market of 6.36%. The Company determined that 6.36% per annum was an appropriate incremental borrowing rate to apply to its real estate operating lease.
The present value of the future minimum lease payments was valued at $744,256 on June 10, 2024.
Right of use assets are included in the consolidated balance sheet are as follows:
| September 30, 2024 | December 31, 2023 | |||||||
| Non-current assets | ||||||||
| Right-of-use assets – finance leases, net of depreciation, included in Property and equipment | $ | $ | ||||||
| Right-of-use assets - operating leases, net of amortization | $ | $ | ||||||
Lease costs consists of the following:
| Nine months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Finance lease cost: | ||||||||
| Amortization of right-of-use assets | $ | $ | ||||||
| Interest expense on finance lease liabilities | ||||||||
| Total finance lease cost | ||||||||
| Operating lease cost | ||||||||
| Lease cost | $ | $ | ||||||
Other lease information:
| Nine months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||||||
| Operating cash flows from finance leases | $ | ( | ) | $ | ( | ) | ||
| Operating cash flows from operating leases | ( | ) | ( | ) | ||||
| Financing cash flows from finance leases | ( | ) | ( | ) | ||||
| Cash paid for amounts included in the measurement of lease liabilities | $ | ( | ) | $ | ( | ) | ||
| Weighted average lease term – finance leases | ||||||||
| Weighted average remaining lease term – operating leases | ||||||||
| Discount rate – finance leases | % | % | ||||||
| Discount rate – operating leases | % | % | ||||||
| 15 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Leases (continued)
Maturity of Leases
Finance lease liability
The amount of future minimum lease payments under finance leases are as follows:
| Amount | ||||
| Remainder of 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total finance lease | ||||
| Imputed interest | ( | ) | ||
| Total finance lease liability | $ | |||
| Disclosed as: | ||||
| Current portion | $ | |||
| Non-Current portion | ||||
| Lease liability | $ | |||
Operating lease liability
The amount of future minimum lease payments under operating leases are as follows:
| Amount | ||||
| Remainder of 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 and thereafter | ||||
| Total undiscounted minimum future lease payments | ||||
| Imputed interest | ( | ) | ||
| Total operating lease liability | $ | |||
| Disclosed as: | ||||
| Current portion | $ | |||
| Non-Current portion | ||||
| Lease liability | $ | |||
9. Short-term Convertible Notes
The short-term convertible notes consist of the following:
| Interest rate | Maturity Date | Principal | Interest | September 30, 2024 |
December 31, 2023 | |||||||||||||||||
| Auctus Fund, LLC | % | $ | $ | $ | $ | |||||||||||||||||
| Joshua Bauman | % | |||||||||||||||||||||
| Series N convertible notes | % | |||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||
| Disclosed as follows: | ||||||||||||||||||||||
| Short-term | $ | $ | ||||||||||||||||||||
| Long-term | ||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||
| 16 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Short-term Convertible Notes (continued)
Joshua Bauman
On August 9, 2023, the Company issued a convertible promissory note to Bauman, in the aggregate principal amount of $150,000. The note bears interest at 10.0% per annum and matures on August 9, 2024. The note is convertible into shares of common stock at a conversion price at the option of the holder at $0.001 per share, adjusted for anti-dilution provisions. The note is convertible into common stock at the option of the holder after the expiration of six months from the issuance date. In addition, should the note reach its maturity date, August 9, 2024, the note will automatically convert into shares of common stock at the conversion price, subject to anti-dilution provisions. The note has not been converted into common shares and remains outstanding without a default notification.
Series N convertible notes
Between January 28, 2019 and June 11, 2020, the Company closed several tranches of Series N Convertible notes in which it raised $3,229,000 in principal from accredited investors through the issuance to the investors of the Company’s Series N convertible notes, in the total original principal amount of $3,229,000, which Notes are convertible into the Company’s common stock at a conversion price of $0.08 per share together with three year warrants to purchase up to a total of 52,237,500 shares of the Company’s common stock at an exercise price of $0.12 per share. Both the conversion price under the Notes and the exercise price under the warrants are subject to standard adjustment mechanisms. The notes matured one year from the date of issuance.
The maturity dates of the Series N convertible notes were extended to December 31, 2024, with the exception of 5 series N convertible notes issued to one investor with an aggregate principal outstanding of $1,273,000, which was extended to December 31, 2025. No consideration was provided to the investors for the maturity date extensions.
Between April 30, 2024 and May 10, 2024, three series N convertible note holders, converted principal of $450,000 into Series R promissory notes after the repayment of $151,475 of accrued interest.
During the current year, the Company repaid $24,000 of accrued interest to certain Series N convertible note holders.
10. Short-term Notes
The short-term notes consist of the following:
| Description | Interest Rate |
Maturity date |
Principal | Accrued Interest |
Unamortized debt discount |
September 30, |
December 31, 2023 Amount | |||||||||||||||||||
| LXT Biotech | % | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Mirage Realty | % | |||||||||||||||||||||||||
| % | ||||||||||||||||||||||||||
| Third Party | % | |||||||||||||||||||||||||
| Revolving line of credit | % | |||||||||||||||||||||||||
| % | ||||||||||||||||||||||||||
| Series R Promissory notes | % | ( |
) | |||||||||||||||||||||||
| Total convertible notes payable | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||
LXR Biotech
On April 12, 2019, the Company, entered into a secured promissory note in the aggregate principal amount of CDN$133,130. The Note had a maturity date of April 11, 2020 and bears interest at the rate of six percent per annum from the date on which the Note was issued.
This note has not been repaid, is in default and remains outstanding.
| 17 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
10. Short-term Notes (continued)
Mirage Realty, LLC
On November 15, 2023, the Company, entered into a senior secured promissory note in the aggregate principal amount of $250,000 for net proceeds of $223,500 after an original issue discount and fees of $26,500. The note earned interest at 10% per annum and originally matured on March 15, 2024. The maturity date was extended to April 15, 2024, with no change to the terms of the note or any additional consideration paid to the noteholder.
On May 13, 2024, the Company repaid principal of $250,000 and accrued interest thereon of $15,000, thereby extinguishing the debt.
On May 15, 2024, the Company, entered into a senior secured promissory note in the aggregate principal amount of $600,000. The note earns interest at 6% per annum for the first two months and 9% per annum for the following two months and 18% for the next two months. The note matures on November 15, 2024. The proceeds of the note were used to acquire the minority shareholder interest in ATHI, refer note 4 above.
Third party note
On April 12, 2019, Eileen Greene, a related party, assigned CDN$1,000,000 of the amount owed by the Company to her, to a third party. The loan bears interest at 12% per annum which the Company agreed to pay.
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). On August 1, 2024, the Company repaid CDN$100,000 ($72,223) of which CDN$53,418 ($38,580) was allocated to principal and CDN$46,582 ($33,643) was allocated to interest repayment.
Revolving line of credit
On February 1, 2024 Ethema Health Corporation, American Treatment Holdings Inc, and Evernia Health Center LLC entered into a secured revolving line of credit agreement (“ Agreement”) with Testing 123, LLC. The draw under the is limited to a maximum of 80% of the Receivables balance as provided to the Lender, subject to the maximum borrowing under the Term Loan Agreement of $1,000,000. The interest on the term loan is 5% per month. The revolving credit line is valid for a period of two years and each draw will have a maturity date that is two months from the draw date, with an origination fee of $1,000 per draw. Each loan may be prepaid at any time without penalty. The Company will pay a commitment fee of $40,000 to the borrower in common shares on the completion of a public offering, unless no such offering takes place within a year, whereby the outstanding principal will be increased by $40,000. The revolving credit line is secured by all assets, tangible and intangible of the Company and its direct and indirect subsidiaries, American Treatment Holdings, Inc. and Evernia Health Center, LLC.
Series R senior secured promissory notes
Between April 15, 2024 and May 10, 2024, the Company entered into securities purchase agreements with accredited investors whereby the Company issued 6 senior secured promissory notes with an aggregate issue price of $660,000 for gross proceeds of $600,000. The promissory notes bear interest at 7.5% per annum, interest is payable quarterly at an increasing rate of 3%, 6%, 9% and 12% of the principal outstanding. The notes mature on March 31,2025.
Between May 2, 2024 and May 10, 2024, the company entered into exchange agreements with three investors, whereby the investors exchanged three series N notes with a principal amount outstanding of $450,000 for senior secured Series R promissory notes with an aggregate issue price of $495,000. The promissory notes bear interest at 7.5% per annum, interest is payable quarterly at an increasing rate of 3%, 6%, 9% and 12% of the principal outstanding. The notes mature on March 31, 2025.
11. Promissory Note
On
May 15, 2024, the Company entered into a Stock Purchase Agreement whereby it acquired the remaining 25% of ATHI representing shares from the minority shareholder for gross proceeds
of $
| September
30, 2024 | December
31, 2023 | |||||||
| Promissory note issued | $ | $ | ||||||
| Repayments | ( | ) | ||||||
| $ | $ | |||||||
| Disclosed as: | ||||||||
| Current portion | $ | $ | ||||||
| Long-term portion | ||||||||
| $ | $ | |||||||
| 18 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
12. Receivables funding
June 2, 2023 Funding
On June 2, 2023, the Company through its subsidiary, Evernia Health Center, LLC entered into a Receivables Sale Agreement with Bizfund.com (“Bizfund”), whereby $198,000 of the Receivables of Evernia were sold to Bizfund, for gross proceeds of $150,000, made up of a cash payment to the Company of $75,750 and the transfer of $74,250 of the January 19, 2023, outstanding principal to the June 2, 2023 funding agreement. The Company is obliged to pay 15.0% of the receivables until the amount of $198,000 is paid in full, with periodic repayments of $4,950 per week. The guarantor of the funding was the previous minority shareholder in ATHI.
The
Company made weekly cash payments of $
September 15, 2023 Funding
On September 15, 2023, the Company, through its subsidiary, Evernia Health Center, LLC entered into a Receivables Sale Agreement with Itria Ventures LLC (“Itria”), whereby $320,000 of the Receivables of Evernia were sold to Itria, for gross proceeds of $250,000. The Company also incurred fees of $3,000, resulting in net proceeds of $247,500. The Company was obliged to pay $6,667 per week until the amount of $320,000 was paid in full. The guarantor of the funding was the previous minority shareholder in ATHI.
The
Company made weekly cash payments of $
May 30, 2024 Funding
On
May 30, 2024, the Company, through its subsidiary, Evernia Health Center, LLC entered into a Receivables Sale Agreement with Fortunate
Sons (“Fortunate”), whereby $
The proceeds of the receivables funding was used to acquire the assets of Boca Cove Detox.
The
Company has repaid $
August 30, 2024 Funding
On
August 30, 2024, the Company, through its subsidiary, Evernia Health Center, LLC entered into a Receivables Sale Agreement with Itria
Ventures LLC (“Itria”), whereby $
The
Company made weekly cash payments of $
13. Government assistance loans
On May 3, 2021, ARIA was granted a government assistance loan in the aggregate principal amount of $157,367. The loan is forgivable if the Company demonstrates that the proceeds were used for expenses such as employee costs during the pandemic. Should the loan not be forgiven, interest is payable on the loan at the rate of 1% per annum and the principal is repayable and interest is payable over an 18-month period.
On September 21, 2022, ARIA received partial forgiveness of the government assistance loan of $104,368, the balance of the loan plus accrued interest is due and payable. On December 30, 2022, the Company sold ARIA to its Chairman and CEO and agreed to assume the repayment of the government assistance loan. As of September 30, 2024, the balance outstanding, including interest thereon was $23,952.
14. Related parties
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Related party payables | ||||||||
| Shawn E. Leon | $ | $ | ||||||
| Leon Developments Ltd. | ||||||||
| Eileen Greene | ||||||||
| Total related party payables | $ | $ | ||||||
| Related party advance | ||||||||
| Eileen Greene | ||||||||
| Principal outstanding | $ | $ | ||||||
| Repayments | ( | ) | ||||||
| Debt discount at inception | ( | ) | ||||||
| Amortization of debt discount | ||||||||
| ( | ) | |||||||
| Total Related party advances | $ | $ | ||||||
| 19 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
14. Related parties (continued)
Shawn E. Leon
At
September 30, 2024 and December 31, 2023, the Company had a payable to Shawn Leon of $
During
the nine months ended September 30, 2024, Mr. Leon was credited with a management fee of $
During
July 2024, the related party payable of $
On July 12, 2024, Mr. Leon converted $1,500,000 of the related party payable into 3,000,000,000 shares of common stock at a conversion price of $0.0005 per share.
Leon Developments, Ltd.
Leon
Developments is owned by Shawn Leon, the Company’s CEO and director. As of September 30, 2024 and December 31, 2023, the Company
owed Leon Developments, Ltd., $
During
July 2024, the related party payable of $
Eileen Greene
As
of September 30, 2024 and December 31, 2023, the Company owed Eileen Greene, the spouse of its CEO, Shawn Leon, $
On July 12, 2024, Ms. Greene converted $500,000 of the related party payable into 1,000,000,000 shares of common stock at a conversion price of $0.0005 per share.
On July 4, 2024, Ms. Greene advanced the Company $250,000 with an original issue discount of $35,000, totaling $285,000. The amount is being repaid in instalments of $5,769 as and when the Company has the cash flow to make the payments, the loan is expected to be fully repaid in June 2025 or earlier depending on cash flow.
All related party transactions occur in the normal course of operations and in terms of agreements entered into between the parties.
| 20 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
15. Stockholder’s deficit
| a. | Common shares |
Authorized and outstanding
The Company has authorized 10,000,000,000 shares with a par value of $0.01 per share. The company has issued 7,729,053,805 and 3,729,053,805 shares of common stock at September 30, 2024 and December 31, 2023, respectively.
On July 12, 2024, the Company issued 4,000,000,000 shares of common stock to Mr. Shawn Leon, the company CEO and his spouse, Ms. Eileen Greene, both related parties, for the conversion of $2,000,000 of related party payables, see note 14 above.
| b. | Series A Preferred shares |
Authorized, issued and outstanding
The Company has authorized 10,000,000 Series A preferred shares with a par value of $0.01 per share. The Company has issued and outstanding 4,600,000 and 4,000,000 Series A Preferred shares at September 30, 2024 and December 31, 2023, respectively.
On September 27, 2024, the Company issued 600,000 shares of Series A Preferred stock to Mr. Shawn Leon for the conversion of $6,000 of related party payables, see note 14 above.
| c. | Series B preferred shares |
Authorized and outstanding
The Company has authorized 400,000 Series B preferred shares with a par value of $1.00 per share. The company has no issued and outstanding Series B Preferred shares at September 30, 2024 and December 31, 2023.
| d. | Stock options |
The Company’s board of directors adopted the Greenstone Healthcare Corporation 2013 Stock Option Plan (the “Plan”) to promote its long-term growth and profitability by (i) providing its key directors, officers and employees with incentives to improve stockholder value and contribute to its growth and financial success and (ii) enable it to attract, retain and reward the best available persons for positions of substantial responsibility. A total of 10,000,000 shares of the Company’s common stock have been reserved for issuance upon exercise of options granted pursuant to the Plan. The Plan allows the Company to grant options to its employees, officers and directors and those of its subsidiaries, provided that only the Company’s employees and those of its subsidiaries may receive incentive stock options under the Plan. The Company has no issued options at September 30, 2024 under the Plan.
| e. | Warrants |
All of the warrants have cashless exercise terms whereby in-the-money warrants may be exercised by reducing the number of shares issued in terms of the warrant exercise to offset the proceeds due on the exercise.
All of the warrants have price protection features whereby any securities issued subsequent to the date of the warrant issuance date, were issued at a lower price, or have conversion features that are lower than the current exercise price, or were converted at a lower price, or are exercisable at a lower price, to the current warrant exercise price, will result in the exercise price of the warrant being set to the lower issue, conversion or exercise price.
| 21 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
15. Stockholder’s deficit (continued)
| e. | Warrants (continued) |
A summary of the Company’s warrant activity during the period from January 1, 2023 to September 30, 2024 is as follows:
| No. of shares | Exercise
price per share |
Weighted average exercise price | ||||||||||
| Outstanding as of January 1, 2023 | $ to $ | $ | ||||||||||
| Granted | $ |
|||||||||||
| Forfeited/cancelled | ( |
) | $ |
|||||||||
| Exercised | ||||||||||||
| Outstanding as of December 31, 2023 | $ to $ | $ | ||||||||||
| Granted | ||||||||||||
| Forfeited/cancelled | ||||||||||||
| Exercised | ||||||||||||
| Outstanding as of September 30, 2024 | $ to $ | $ | ||||||||||
The following table summarizes information about warrants outstanding at September 30, 2024:
| Warrants outstanding | Warrants exercisable | ||||||||||||||||||||
| Exercise price | No. of shares | Weighted average remaining years |
Weighted average exercise price |
No. of shares | Weighted average exercise price |
||||||||||||||||
| $0.001 | |||||||||||||||||||||
| $0.002050 | |||||||||||||||||||||
| $ | $ | ||||||||||||||||||||
All of the warrants outstanding at September 30, 2024 are vested. The warrants outstanding at September 30, 2024 have an intrinsic value of $.
16. Segment information
The Company had two reportable operating segments, until the disposal of CCH on June 30, 2023. Prior to that date, the Company derived rental income from the property owned by its CCH subsidiary. Subsequent to June 30, 2023, the Company only provides rehabilitation services to customers, these services are provided to customers at its Evernia, Addiction Recovery Institute of America facility.
| 22 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended September 30, 2024 and 2023, the following warrants exercisable for shares and convertible securities
convertible into a number of shares were excluded from the computation of diluted net loss per share as the results would have been anti-dilutive.
| Three and nine months ended September 30, 2024 | ||||
| Shares issuable upon exercise of warrants | ||||
| Shares issuable on conversion of convertible notes | ||||
For the three months ended September 30, 2023, the computation of basic and diluted earnings per share is calculated as follows:
| Number of | Per share | |||||||||||
| Amount | shares | amount | ||||||||||
| Basic earnings per share | ||||||||||||
| Net income per share available for common stockholders | $ | $ | ||||||||||
| Effect of dilutive securities | ||||||||||||
| Convertible debt | ||||||||||||
| Diluted earnings per share | ||||||||||||
| Net income per share available for common stockholders | $ | $ | ||||||||||
For the nine months ended September 30, 2023, the computation of basic and diluted earnings per share is calculated as follows:
| Number of | Per share | |||||||||||
| Amount | shares | amount | ||||||||||
| Basic earnings per share | ||||||||||||
| Net income per share available for common stockholders | $ | $ | ||||||||||
| Effect of dilutive securities | ||||||||||||
| Convertible debt | ||||||||||||
| Diluted earnings per share | ||||||||||||
| Net income per share available for common stockholders | $ | $ | ||||||||||
| 23 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
18. Commitments and contingencies
a. Options granted to purchase shares in ATHI
On July 12, 2020, the Company entered into a five-year option agreement with Leonite Capital LLC (“Leonite”) and other investors (collectively the “Transferees”). The Company agreed to sell to Leonite a portion of the total outstanding shares of ATHI from the shares of ATHI held by the company. The Company provided Leonite an option to purchase 4,000,000 shares of ATHI from the Company for a purchase consideration of $0.0001 per share (a total consideration of $400), based on the advances that Leonite made to the Company totaling $396,000. Leonite shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by Leonite to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option.
On September 14, 2020, the Company entered into a five-year option agreement with Ed Blasiak (“Blasiak”) whereby the Company agreed to sell to Blasiak a portion of the total outstanding shares of ATHI. The Company provided Blasiak an option to purchase 571,428 shares of ATHI from the Company for a purchase consideration of $0.0001 per share (a total consideration of $57), based on the advances that Blasiak made to the Company totaling $50,000. Blasiak shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by Blasiak to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option.
On October 29, 2020, the Company entered into a five-year option agreement with First Fire whereby the Company agreed to sell to First Fire a portion of the total outstanding shares of ATHI. The Company provided First Fire an option to purchase 1,428,571 shares of ATHI from the Company for a purchase consideration of $0.0001 per share (a total consideration of $143), based on the advances that First Fire made to the Company totaling $120,000. First Fire shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by First Fire to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option.
On October 29, 2020, the Company entered into a five-year option agreement entered into with Bauman, so that the Company agreed to sell to Bauman a portion of the total outstanding shares of ATHI. The Company provided Bauman an option to purchase 1,428,571 shares of ATHI from the Company for a purchase consideration of $0.0001 per share (a total consideration of $143), based on the advances that Bauman made to the Company totaling $120,000. Bauman shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by Bauman to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option.
b. Other
The Company has principal and interest payment commitments under the Convertible notes disclosed under Note 9 above. Conversion of these notes are at the option of the investor, if not converted these notes may need to be repaid.
From time to time, the Company and its subsidiaries enter into legal disputes in the ordinary course of business. The Company believes there are no material legal or administrative matters pending that are likely to have, individually or in the aggregate, a material adverse effect on its business or results of operations.
| 24 |
ETHEMA HEALTH CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 19. | Subsequent events |
Edgewater Recovery Centers, LLC
On July 8, 2024 the Company finalized the execution of a letter of intent and on July 10, 2024 entered into a Management Agreement with respect to the assets and operations of Edgewater Recovery Center LLC of Morehead Kentucky (“ETC”).
The initial proposal was for the Company to acquire the business and assets of ETC and the real property in which ETC operates included in three separate entities, ERC Investments, LLC (“ERC”), JDE Properties, LLC (“JDE”), and New Journey LLC (“NJ”). Due to the requirement for credit and personal guarantees, the Company is unable to acquire the real property as part of this transaction. The three real property entities., ERC, JDE and NJ entities will now be acquired by BH Properties Fund LLC (“BH Prop”), a fund under control of Shawn Leon, the Company’s CEO and director pursuant to an Equity Purchase Agreement (“EPA”).
On October 22, 2024, ARIA Kentucky, LLC (“ARIA Kentucky”), a wholly owned subsidiary of the Company entered into a binding Asset Purchase Agreement whereby ARIA Kentucky will acquire the business of ETC, including; all the assignable assets, including current assets existing at the time of closing, all cash balances and rights to receive cash, all equipment, all warranties related to the business and acquired assets, all intangible assets including intellectual property, all equipment, all business inventories, all property leases associated with the business, all assumed contracts, all governmental authorizations; and all information and records, including patient records, as defined in the APA.
THE APA also contains certain Seller and Purchaser representations, warranties, covenants and obligations, which are defined in the APA and are customary in agreements of this nature.
The APA may be terminated by either party if not closed within 120 days, or by mutual consent of the parties, or by either the purchaser or seller upon breach of any of the representations, warranties, covenants or obligations by the other party, or by either party if any law or regulation prevents the conclusion of the APA.
Upon the closing of the Agreement, which will occur upon the settlement or waiver of all condition’s precedent, ARIA Kentucky will pay a purchase consideration of $250,000 and assume certain liabilities related to the acquired assets, including trade payables from July 15, 2024, the Transfer Date, until the closing date. All liabilities under assumed contracts and certain specifically identified liabilities, including a settlement agreement with the United States and Kentucky government and certain obligations as a borrower or guarantor related to banking obligations will also be assumed by ARIA Kentucky. The closing is also conditional upon the simultaneous closing of the EPA with BH Prop.
ETC has been managed by the Company since July 15, 2024 and will continue to be managed until such time as the newly created, wholly owned subsidiary of the Company, ARIA Kentucky is fully licensed, accredited and contracted with the managed care organizations, whereupon the operations of ETC will cease. ETC will continue to generate revenues from servicing clients during the transition period. The existing interim management of ETC will be continued by ARIA Kentucky and all operations will be conducted under the Addiction Recovery Institute of America ("ARIA") Brand.
Other than disclosed above, the Company has evaluated subsequent events through the date of the condensed consolidated financial statements were issued, it did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
| 25 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our condensed consolidated financial statements and the notes presented herein and the consolidated financial statements and the other information set forth in our Annual Report on Form 10- K for the year ended December 31, 2023 filed with the Securities and Exchange Commission on May 7, 2024. In addition to historical information, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed herein and any other periodic reports filed and to be filed with the Securities and Exchange Commission.
Plan of Operation
During the next twelve months, we plan to continue to grow the Evernia business organically or through acquisitions, should any opportunities present themselves.
Edgewater Recovery Centers, LLC
As mentioned in Note 19 to the unaudited condensed consolidated financial statements, we finalized the execution of a letter of intent and a management agreement with respect to the assets and operations of Edgewater Recovery Center LLC of Morehead Kentucky, and on October 22, we signed a binding Asset Purchase Agreement ("APA") to purchase the business operations and operational assets, excluding any real property of Edgewater Recovery Center, LLC ("ETC") headquartered in Morehead Kentucky. ETC operates primarily in the urban areas of Morehead in eastern Kentucky and Paducah in western Kentucky.
ETC has been managed by us since July 15, 2024 and will continue to be managed until such time as our newly created, wholly owned subsidiary, ARIA Kentucky, LLC ("ARIA Kentucky") is fully licensed, accredited and contracted with the managed care organizations, whereupon the operations of ETC will cease. ETC will continue to generate revenues from servicing clients during the transition period. The existing interim management of ETC will be continued by ARIA Kentucky and all operations will be conducted under the Addiction Recovery Institute of America ("ARIA") Brand.
The current ETC patient census in Kentucky is approximately 195 patients which we believe, that with the conclusion of the binding APA, will increase dramatically in the near term. The Ethema management team has stabilized the ETC operations over the last three months and is cash flow positive. we intend to add another 16 beds in October at the Paducah location, which has been operating at full capacity, increasing revenue in this underserved market.
ETC and after the closing of the transaction, ARIA Kentucky, primarily provides care to Medicaid insured clients. There is currently on-going investigations into other Medicaid providers in Kentucky, which, we believe, will reduce the number of patients served by these providers, presenting ARIA Kentucky with an opportunity to further expand its footprint and revenue potential in Kentucky.
Results of operations for the three months ended September 30, 2024 and 2023.
Revenues
Revenues were $1,760,000 and $1,353,899 for the three months ended September 30, 2024 and 2023, respectively, an increase of $406,101 or 30.0%. All of the revenue is related to in-patient services. The increase is attributable to the increase in the number of patients at the West Palm Beach facility due to a concerted marketing effort during the current quarter.
| 26 |
Operating Expenses
Operating expenses were $2,483,708 and $1,320,371 for the three months ended September 30, 2024 and 2023, respectively, an increase of $1,163,337 or 88.1%. The increase is primarily due to the following:
| ● | General and administrative expenses was $417,888 and $249,283 for the three months ended September 30, 2024 and 2023, respectively, an increase of $168,605. The increase includes an increase in advertising and marketing costs of $93,066 and an increase in customer related food costs of $32,830 related to the increase in patient numbers. The balance of the increase consists of numerous individually insignificant expense items. |
| ● | Rent expense was $392,772 and $107,707 for the three months ended September 30, 2024 and 2023, respectively, an increase of $285,065 or 264.7%. The increase is due to the acquisition of the Evernia property and the subsequent sale of the property at an increased value with the simultaneous entry into a new 20-year lease agreement. The rental expense includes a rental smoothing adjustment of $55,363 in terms of US GAAP over the life of the lease, the rental expense incurred on the Boca Cove Detox Center of $114,077 and the increase in rental expense associated with the increased value on the Evernia property which was acquired and resold to a third party at an increased market related value. |
| ● | Management fees were $480,000 and $30,000 for the three months ended September 30, 2024 and 2023, respectively, an increase of $450,000 or 1,500.0%. A management fee was accrued for Shawn Leon during the current quarter after several years of no management fees due to the previous financial performance of the group. |
| ● | Professional fees were $231,312 and $171,659 for the three months ended September 30, 2024 and 2023, respectively, an increase of $59,653 or 34.8%. The increase is primarily due to the level of corporate activity as we are concentrating on closing certain acquisitions and pursuing further acquisition opportunities. |
| ● | Salaries and wages were $839,015 and $651,537 for the three months ended September 30, 2024 and 2023, respectively, an increase of $187,478 or 28.8%. the increase is primarily due to the increase in employee headcount to; (i) staff the Boca Detox Center, which was acquired in the prior quarter, no revenues have been generated from this facility, which is waiting for its operational license, which was granted in October 2024, and (ii) to service the increase in our patient headcount at our Evernia facility which is directly correlated to the increase in revenue. |
| ● | Depreciation and amortization was $122,721 and $110,185 for the three months ended September 30, 2024 and 2023, respectively, an increase of $12,536 or 11.4%. The increase is primarily due to the acquisition of the Boca Cove Detox Center during the prior quarter. |
Operating (loss) income
Operating loss was $723,708 and operating income was $33,528 for the three months ended September 30, 2024 and 2023, respectively, an increase of $757,236 or 2,258.5%. The increase is due to the increase in operational expenses of $1,163,337, offset by the increase in revenue of $406,101 as discussed in detail above.
Other income
Other income was $40,000 and $110 for the three months ended September 30, 2024 and 2023, respectively., an increase of $39,890. Other income during the current period is a temporary management fee earned on operating the Edgewater Recovery operation until such time as the acquisition is closed.
Other expense
Other expense was $971 and $0 for the three months ended September 30, 2024 and 2023, respectively. The amounts are immaterial.
Gain on disposal of property
Gain on disposal of property was $0 and $2,484,172 for the three months ended September 30, 2024 and 2023, respectively, a decrease of $2,484,172 or 100.0%. In the prior year, we exercised our option to acquire the property located at 950 Evernia Street, West Palm Beach, Florida, in which its treatment center operates, and subsequently disposed of the property to a third party, realizing a profit of $2,484,172, after transaction costs.
Loss on debt extinguishment
Loss on debt extinguishment was $0 and $277,175 for the three months ended September 30, 2024 and 2023, respectively, a decrease of $277,175 or 100.0%. The loss on debt extinguishment in the prior year is related primarily to replacement warrants issued to Leonite Capital as part of the settlement reached with Leonite, whereby all indebtedness to Leonite was extinguished.
Interest income
Interest income was $766 and $0 for the three months ended September 30, 2024 and 2023, respectively. The amounts are immaterial.
| 27 |
Interest expense
Interest expense was $167,575 and $81,371 for the three months ended September 30, 2024 and 2023, respectively, an increase of $86,204 or 105.9%. The increase is primarily due to the additional debt advanced to us to close the acquisition of the minority shareholders interest in ATHI and the Boca Cove Detox facility.
Amortization of debt discount
Amortization of debt discount was $141,205 and $73,857 for the three months ended September 30, 2024 and 2023, respectively, an increase of $67,348 or 91.2%. The increase is primarily due the increase in debt to close the acquisition of the minority shareholders interest in ATHI and the acquisition of the Boca Cove detox facility during the prior quarter.
Foreign exchange movements
Foreign exchange movements were $(8,021) and $6,598 for the three months ended September 30, 2024 and 2023, respectively, a decrease of $14,619 or 221.6%. The foreign exchange movement consists of realized exchange gains and (losses) on monetary assets and liabilities settled during the current year as well as mark to market adjustments on monetary assets and liabilities reflected on the balance sheet and denominated in Canadian Dollars.
Net (loss) income before income taxes
Net loss before income taxes was $(1,000,714) and net income before income taxes $2,092,005 for the three months ended September 30, 2024 and 2023, respectively, an increase of $3,092,719 or 147.8%. The increase is primarily due to the prior year gain on disposal of property, the increase in operating expenses over the prior year, offset by an increase in revenues.
Income Taxes
Income taxes was $0 and $15,532 for the three months ended September 30, 2024 and 2023, a decrease of $15,532 or 100.0%. We have sufficient net operating losses to offset any taxable income during the current period, the prior year income tax credit related to a deferred tax credit on intangible assets.
Net (loss) income
Net loss was $(1,000,714) and net income was $2,107,537 for the three months ended September 30, 2024 and 2023, respectively, an increase of $3,108,251 or 147.5%, primarily due to the increase in net loss before taxation and the movement in income taxes, discussed above.
For the nine months ended September 30, 2024 and September 30, 2023.
Revenues
Revenues were $4,550,200 and $4,219,904 for the nine months ended September 30, 2024 and 2023, respectively, an increase of $330,296 or 7.8%. The revenue from in-patient services related to Evernia was S4,550,200 and $4,034,607 for the nine months ended September 30, 2024 and 2023, respectively, an increase of $515,593 or 12.8%. The increase is attributable to the increase in the number of beds available at the facility and increasing our in-network provider status to include several insurance providers.
The revenue from rental properties was $0 and $185,296 for the nine months ended September 30, 2024 and 2023, a decrease of $185,296 or 100.0%. We sold CCH, our rental owning subsidiary on June 30, 2023.
| 28 |
Operating Expenses
Operating expenses were $5,780,493 and $4,079,204 for the nine months ended September 30, 2024 and 2023, respectively, an increase of $1,701,289 or 41.74%. The increase is primarily due to the following:
| ● | General and administrative expenses was $1,055,663 and $755,685 for the nine months ended September 30, 2024 and 2023, respectively, an increase of $299,978. The increase includes an increase in advertising and marketing costs of $148,708, to attract more clients to the facility, and an increase in property taxes of $62,434, in line with the increase in rental expenses and customer related food costs of $33,884 related to the increase in patient numbers. The balance of the increase consists of numerous individually insignificant expense items. |
| ● | Rent expense was $932,035 and $328,204 for the nine months ended September 30, 2024 and 2023, respectively, an increase of $603,831 or 184.0%. The increase is due to the acquisition of the Evernia property and the subsequent sale of property at an increased value with the simultaneous entry into a new 20-year lease agreement. The rental expense includes a rental smoothing adjustment of $171,317 in terms of US GAAP over the life of the lease, the rental expense incurred on the newly acquired Boca Cove Detox Center of $114,077 and the increase in rental expense associated with the increased value on the Evernia property which was acquired and resold to a third party at an increased market related value. |
| ● | Management fees was $480,000 and $273,003 for the nine months ended September 30, 2024 and 2023, respectively, an increase of $206,997 or 75.8%. A management fee was accrued for Shawn Leon during the current quarter after several years of no management fees due to the previous financial performance of the group and in the prior year, management fees included a fee paid to Leon developments from CCH prior to the disposal of CCH to a third party on September 30, 2023. |
| ● | Professional fees were $686,994 and $460,773 for the nine months ended September 30, 2024 and 2023, respectively, an increase of $226,221 or 49.1%. The increase is primarily due to the level of corporate activity as we are concentrating on closing certain acquisitions and pursuing further acquisition opportunities. |
| ● | Salaries and wages were $2,279,788 and $1,873,280 for the nine months ended September 30, 2024 and 2023, respectively, an increase of $406,508 or 21.7%. the increase is primarily due to the increase in patients and the growth of the facility over the prior year and is directly correlated to the increase in revenue. |
| ● | Depreciation and amortization was $346,013 and $388,259 for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $42,246 or 10.9%. The decrease is primarily due to the disposal, in the prior year of CCH, which included several depreciable assets. |
Operating (loss) income
The operating loss was $1,230,293 and operating income was $140,700 for the nine months ended September 30, 2024 and 2023, respectively, an increase of $1,370,993 or 974.4%. The increase is due to the increase in operating expenses of $1,701,289, offset by the increase in revenue of $330,296, as discussed in detail above.
Other income
Other income was $40,000 and $449 for the nine months ended September 30, 2024 and 2023, respectively, an increase of $39,551. Other income during the current period is a temporary management fee earned on operating the Edgewater Recovery operation until such time as the acquisition is closed.
Other expense
Other expense was $971 and $0 for the nine months ended September 30, 2024 and 2023, respectively. The amounts are immaterial
Penalty on convertible debt
The penalty on convertible notes was $0 and $34,688 for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $34,688 or 100%. The penalty on convertible note in the prior year was agreed upon with one of our lenders whose note was in default and was subsequently settled after June 30, 2023.
Extension fee on property purchase
The extension fee on the property purchase was $0 and $130,000 for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $130,000 or 100%. The extension fee was levied in the prior year by the landlord of our West Palm Beach facility to afford us additional time to structure the acquisition of the facility, which we disposed of to a third party after the acquisition.
Gain on disposal of property
Gain on disposal of property was $0 and $2,484,172 for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $2,484,172 or 100.0%. In the prior year, we exercised our option to acquire the property located at 950 Evernia Street, West Palm Beach, Florida, in which our treatment center operates, and subsequently disposed of the property to a third party, realizing a profit of $2,484,172, after transaction costs.
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Loss on debt extinguishment
Loss on debt extinguishment was $0 and $277,175 for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $277,175 or 100.0%. The loss on debt extinguishment in the prior year is related primarily to replacement warrants issued to Leonite Capital as part of the settlement reached with Leonite, whereby all indebtedness to Leonite was extinguished.
Interest income
Interest income was $1,864 and $0 for the nine months ended September 30, 2024 and 2023, respectively. The amounts are immaterial.
Interest expense
Interest expense was $367,675 and $382,448 for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $14,773 or 3.9%. The decrease is primarily due to monitoring fees incurred in the prior year on two short term notes which were in default and additional default interest incurred on those borrowings.
Amortization of debt discount
Amortization of debt discount was $279,607 and $238,304 for the nine months ended September 30, 2024 and 2023, respectively, an increase of $41,303 or 17.3%. The increase is primarily due the increase in debt to close the acquisition of the minority shareholders interest in ATHI and the acquisition of the Boca Cove detox facility during the prior quarter.
Foreign exchange movements
Foreign exchange movements were $(3,510) and $(84,148) for the nine months ended September 30, 2024 and 2023, respectively, representing the realized exchange gains and (losses) on monetary assets and liabilities settled during the current year as well as mark to market adjustments on monetary assets and liabilities reflected on the balance sheet and denominated in Canadian Dollars.
Net (loss) income before income taxes
Net loss before income taxes was $(1,840,192) and net income before income taxes was $1,478,558 for the nine months ended September 30, 2024 and 2023, respectively, an increase of $3,318,750 or 224.5%. The increase is primarily due to the increase in the operating loss, the prior year gain on sale of property, offset by the prior year loss on debt extinguishment, and the prior year extension fee paid on the property purchase, all discussed in detail above.
Income taxes
Income taxes was $0 and a Tax credit was $(221,107) for the nine months ended September 30, 2024 and 2023, a decrease of $221,107 or 100.0%. We have sufficient net operating losses to offset any taxable income during the current period, the prior year income tax credit related to a deferred tax credit on intangible assets and the reversal of prior year tax provisions upon filing prior period tax returns.
Net (loss) income
Net (loss) income was $(1,840,192) and $1,699,665 for the nine months ended September 30, 2024 and 2023, respectively, an increase of $3,539,857 or 208.3%. The increase is primarily due to the increase in net loss before taxes offset by the taxation credit, as discussed above.
Commitments and contingencies
The amount of future minimum lease payments under finance leases are as follows:
| Amount | ||||
| Remainder of 2024 | $ | 2,457 | ||
| 2025 | 9,829 | |||
| 2026 | 6,195 | |||
| 2027 | 1,707 | |||
| 20,188 | ||||
The amount of future minimum lease payments under operating leases are as follows:
| Amount | ||||
| Remainder of 2024 | $ | 257,672 | ||
| 2025 | 1,045,192 | |||
| 2026 | 1,074,288 | |||
| 2027 | 961,526 | |||
| 2028 | 841,379 | |||
| 2029 and thereafter | 15,358,663 | |||
| 19,538,720 | ||||
We also have commitments under convertible notes, short-term notes, promissory note and receivables funding. If the convertible loans, as disclosed in note 9, above are not converted they will need to be repaid.
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Liquidity and Capital Resources
We have prepared our unaudited condensed consolidated financial statements in accordance with US GAAP applicable to a going concern, which assumes that we will be able to meet our obligations and continue our operations in the normal course of business. At September 30, 2024 we had a working capital deficiency of $7.1 million, and total liabilities in excess of assets in the amount of $7.1 million. We believe that current available resources will not be sufficient to fund our planned expenditures over the next 12 months. These factors, individually and collectively indicate that a material uncertainty exists that raises substantial doubt about our ability to continue as a going concern for one year from the date of issuance of these interim condensed consolidated financial statements.
We are dependent on the raising additional capital through placement of common shares, and/or debt financing in order to implement our business plan and generating sufficient revenue in excess of costs. If we raise additional capital through the issuance of equity securities or securities convertible into equity, stockholders will experience dilution, and such securities may have rights, preferences or privileges senior to those of the holders of common stock or convertible senior notes. If we raise additional funds by issuing debt, we may be subject to limitations on our operations, through debt covenants or other restrictions. If we obtain additional funds through arrangements with collaborators or strategic partners, we may be required to relinquish our rights to certain geographical areas, or techniques that we might otherwise seek to retain. There is no assurance that we will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on our financial condition. These unaudited condensed consolidated financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should we be unable to continue as a going concern.
Cash used in operating activities was $377,954 and $575,790 for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $197,836. The decrease is primarily due to the following:
| ● | An increase in net loss of $3,539,857, discussed under operations above. |
| ● | An increase in the movement of non-cash items of $2,607,477 primarily due to the movement in the gain on disposal of property of $2,484,172, and the movement in on-cash management fees accrued of $480,000, offset by the movement in loss on debt extinguishment of $277,175. |
| ● | The movement in working capital increased by $1,130,216, primarily due to the increase in the movements in accounts receivable of $352,368 accounts payable of $238,948, operating lease liabilities of $262,298 and taxes payable of $237,211. |
Cash provided by (used in) financing activities was $1,415,265 and $(2,099,676) for the nine months ended September 30, 2024 and 2023, respectively. In the current period we received $1,912,000 and repaid $(801,323) of short-term notes and received $542,000 and repaid $378,688 from receivables funding, in addition we received a term advance of $250,000 from a related party of which $11,538 was repaid. We also repaid $40,000 of the $475,000 promissory note issued on the acquisition of the minority interest in ATHI. In the prior period we repaid convertible notes of $1,124,442, repaid promissory notes of $568,325, third party loans of $361,260 and net repayment of receivables funding of $267,771, primarily out of the net proceeds of the property disposal, offset by proceeds received on convertible notes of $150,000 and proceeds from promissory notes of $223,500.
Over the next twelve months we estimate that we will require approximately $3.5 million for working capital and to repay existing short-term notes as the business continues to develop its rehab business in the US market. We have convertible notes, short term loans and promissory notes which will mature or have already matured during the current year and may have to raise equity or secure debt. There is no assurance that 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. In the opinion of management, our liquidity risk is assessed as high due to this uncertainty.
We have prepared our unaudited condensed consolidated financial statements in accordance with US GAAP applicable to a going concern, which assumes that we will be able to meet our obligations and continue our operations in the normal course of business. At September 30, 2024 we had a working capital deficiency of $7.1 million, and total liabilities in excess of assets in the amount of $7.1 million. We believe that current available resources will not be sufficient to fund our planned expenditures over the next 12 months. These factors, individually and collectively indicate that a material uncertainty exists that raises substantial doubt about our ability to continue as a going concern for one year from the date of issuance of these interim condensed consolidated financial statements.
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Recently Issued Accounting Pronouncements
The recent Accounting Pronouncements are fully disclosed in note 2 to our unaudited condensed consolidated financial statements.
Management does not believe that any other recently issued but not yet effective accounting pronouncements, if adopted, would have an effect on the accompanying unaudited condensed consolidated financial statements.
Off balance sheet arrangements
We do not maintain off-balance sheet arrangements nor do we participate in non-exchange traded contracts requiring fair value accounting treatment.
Inflation
The effect of inflation on our revenue and operating results was not significant.
Climate Change
We believe that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) under the Exchange Act, our management carried out an evaluation, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Report. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures as of September 30, 2024 are not effective due to a lack of written policies and procedures to address all material transactions and developments impacting our financial statements.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our fiscal quarter ended September 30, 2024. Our management is committed to improving our controls and procedures by, among other matters, continuing to consider and adopt appropriate policies and procedures to address all material transactions and developments impacting our financial statements. However, our management does not expect that our disclosure controls and procedures and our internal control processes, even if improved, will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of error or fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that the breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
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PART II
Item 1. Legal Proceedings.
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Item 1A. Risk Factors.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item.
Item 2. Unregistered sales of equity securities and use of proceeds
Unregistered sales of equity securities
On September 27, 2024, we issued 600,000 shares of Series A Preferred stock to Mr. Shawn Leon for the conversion of $6,000 of related party payables.
Use of proceeds from public offerings of common stock
None.
Item 3. Defaults upon senior securities
None.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits
| Exhibit No. | Description |
| 10.1 | |
| 10.2 | |
| 10.3 | |
| 31.1 | Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of 2002 * |
| 32.1 | Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002* |
| 101.INS | Inline XBRL Instance Document |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL | Inline Taxonomy Extension CAL XBRL Calculation Linkbase Document |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL Document) |
* filed herewith
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ETHEMA HEALTH CORPORATION
Date: November 14, 2024
By: /s/ Shawn E. Leon.
Name: Shawn E. Leon
Title: Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer)
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