Ethema Health Corporation., Form 10-Q, quarterly period ended September 30, 2025

Summary

The quarterly report on Form 10-Q of Ethema Health Corporation, a Colorado corporation (Commission File Number 000-54748) based in West Palm Beach, Florida, for the quarterly period ended September 30, 2025. The company checks the boxes for a non-accelerated filer and a smaller reporting company. Its condensed consolidated balance sheet reports total assets of $30,267,418 at September 30, 2025, against $12,158,402 at December 31, 2024, including goodwill of $3,493,850. The statement of operations reports revenues of $5,529,402 for the three months and $13,952,597 for the nine months ended September 30, 2025, against $1,760,000 and $4,550,200 a year earlier. The report is signed on December 3, 2025 by Shawn E. Leon, Chief Executive Officer and Chief Financial Officer.

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UNITED
STATES

SECURITIES
AND EXCHANGE COMMISSION

Washington,
D.C. 20549

FORM 10-Q

(Mark
One)

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

For
the quarterly period ended September 30, 2025

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

For
the transition period from to

Commission
File Number 000-54748

ETHEMA HEALTH CORPORATION.

(Exact
Name of Registrant as Specified in its Charter)

Colorado | 84-1227328
(State or other jurisdiction
of incorporation or organization) | (I.R.S. employer Identification No.)
950 Evernia Street West Palm Beach , Florida | 33401
Address of Principal Executive
Offices | Zip Code

( 416 ) 500-0020

Registrant’s
Telephone Number, Including Area Code

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

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. Yes ☒ No ☐

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

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

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

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

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

Indicate
the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Number of
shares of common stock outstanding as of December 2, 2025 was 7,726,283,805 .

NOTE REGARDING
FORWARD-LOOKING STATEMENTS

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

NOTE
REGARDING COMPANY REFERENCES

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

FORM 10-Q

ETHEMA
HEALTH CORPORATION

TABLE
OF CONTENTS

ETHEMA
HEALTH CORPORATION

CONDENSED CONSOLIDATED
BALANCE SHEETS

September 30, 2025 | December 31, 2024
ASSETS | (unaudited)
Current assets
Cash | $ | 114,030 | $ | 244,771
Accounts receivable, net | 2,435,606 | 260,841
Prepaid expenses | 58,931 | 23,146
Other current assets | 19 | —
Total current assets | 2,608,586 | 528,758
Non-current assets
Property and equipment, net | 1,323,766 | 699,688
Intangible assets, net | 3,113,680 | 536,971
Goodwill | 3,493,850 | —
Right of use assets | 10,682,105 | 9,920,592
Right of use assets – related party | 8,532,607 | —
Deposits paid | 512,824 | 472,393
Total non-current assets | 27,658,832 | 11,629,644
Total assets | $ | 30,267,418 | $ | 12,158,402
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
Accounts payable and accrued liabilities | $ | 1,425,921 | $ | 764,255
Bank loans | 755,960 | —
Assumed liability | 909,858 | —
Convertible notes, net of discounts | 3,998,984 | 3,973,245
Short-term notes, net | 3,092,765 | 2,575,123
Promissory note | 295,000 | 405,000
Funding arrangements, net | 1,105,214 | 516,247
Related party advance, net | 273,461 | 264,966
Government assistance loans | 21,395 | 15,088
Operating lease liability | 524,292 | 299,102
Operating lease liability -related party | 511,205 | —
Finance lease liability | 7,645 | 9,829
Related party payables | 1,640,012 | 633,318
Stock subscription liability | 198,600 | 198,600
Total current liabilities | 14,760,312 | 9,654,773
Non-current liabilities
Bank loans | 3,902,226 | —
Assumed liability | 619,010 | —
Note payable – related party | 86,017 | —
Government assistance loans | — | 6,149
Operating lease liability | 10,647,157 | 9,949,454
Operating lease liability – related party | 8,083,964 | —
Finance lease liability | 2,039 | 6,593
Deferred taxation | 739,750 | —
Total non-current liabilities | 24,080,163 | 9,962,196
Total liabilities | 38,840,475 | 19,616,969
Stockholders’ deficit
Preferred stock - Series A; $ 0.01 par value, 10,000,000 authorized, 4,765,000 shares issued and outstanding as of September 30, 2025 and December 31, 2024, respectively. | 47,650 | 47,650
Common stock - $ 0.01 par value, 10,000,000,000 shares authorized; 7,726,283,805 and 7,729,053,805 shares issued and outstanding as of September 30, 2025 and December 31, 2024, respectively. | 77,262,839 | 77,290,539
Additional paid-in capital | 25,013,783 | 24,986,083
Discount for shares issued below par value | ( 65,363,367 | ) | ( 65,363,367 | )
Accumulated deficit | ( 45,533,962 | ) | ( 44,419,472 | )
Total stockholders’ deficit | ( 8,573,057 | ) | ( 7,458,567 | )
Total liabilities and stockholders’ deficit | $ | 30,267,418 | $ | 12,158,402

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

ETHEMA
HEALTH CORPORATION

UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended September 30, 2025 | Three months ended September 30, 2024 | Nine months ended September 30, 2025 | Nine months ended September 30, 2024
Revenues | $ | 5,529,402 | $ | 1,760,000 | $ | 13,952,597 | $ | 4,550,200
Operating expenses
General and administrative | 1,053,096 | 417,888 | 2,805,491 | 1,055,663
Salaries and wages | 2,524,179 | 839,015 | 6,830,699 | 2,279,788
Rent expense | 780,532 | 392,772 | 2,287,447 | 932,035
Professional fees | 359,384 | 231,312 | 1,135,197 | 686,994
Management fees | 60,000 | 480,000 | 180,000 | 480,000
Depreciation and amortization | 206,196 | 122,721 | 605,682 | 346,013
Total operating expenses | 4,983,387 | 2,483,708 | 13,844,516 | 5,780,493
Operating income (loss) | 546,015 | ( 723,708 | ) | 108,081 | ( 1,230,293 | )
Other Income (expense)
Other income | 15 | 40,000 | 172,346 | 40,000
Other expense | — | ( 971 | ) | — | ( 971 | )
Interest income | 2,006 | 766 | 3,691 | 1,864
Interest expense | ( 348,098 | ) | ( 167,575 | ) | ( 965,801 | ) | ( 367,675 | )
Amortization of debt discount | ( 158,064 | ) | ( 141,205 | ) | ( 448,034 | ) | ( 279,607 | )
Foreign exchange movements | 10,828 | ( 8,021 | ) | ( 23,983 | ) | ( 3,510 | )
Net income (loss) before income taxes | 52,702 | ( 1,000,714 | ) | ( 1,153,700 | ) | ( 1,840,192 | )
Income taxes | 13,434 | — | 39,210 | —
Net income (loss) | 66,136 | ( 1,000,714 | ) | ( 1,114,490 | ) | ( 1,840,192 | )
Net loss attributable to non-controlling interest | — | — | — | 101,842
Net income (loss) available to common shareholders of Ethema Health Corporation | $ | 66,136 | $ | ( 1,000,714 | ) | $ | ( 1,114,490 | ) | $ | ( 1,738,350 | )
Loss per share
- Basic | $ | 0.00 | $ | ( 0.00 | ) | $ | ( 0.00 | ) | $ | ( 0.00 | )
- Diluted | $ | 0.00 | $ | ( 0.00 | ) | $ | ( 0.00 | ) | $ | ( 0.00 | )
Weighted average common shares outstanding
- Basic | 7,726,283,805 | 7,207,314,674 | 7,726,789,279 | 4,896,937,017
- Diluted | 7,726,283,805 | 7,207,314,674 | 7,726,789,279 | 4,896,937,017

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

ETHEMA
HEALTH CORPORATION

UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

Series A Preferred | Common | Additional paid-in | Discount to | Accumulated
Shares | Amount | Shares | Amount | Capital | par value | Deficit | Total
Balance as of December 31, 2024 | 4,765,000 | $ | 47,650 | 7,729,053,805 | $ | 77,290,539 | $ | 24,986,083 | $ | ( 65,363,367 | ) | $ | ( 44,419,472 | ) | $ | ( 7,458,567 | )
Common shares cancelled | ( 2,770,000 | ) | ( 27,700 | ) | 27,700 | — | — | —
Net loss | — | — | — | — | — | — | ( 885,097 | ) | ( 885,097 | )
Balance as of March 31, 2025 | 4,765,000 | $ | 47,650 | 7,726,283,805 | $ | 77,262,839 | $ | 25,013,783 | $ | ( 65,363,367 | ) | $ | ( 45,304,569 | ) | $ | ( 8,343,664 | )
Net loss | — | — | — | — | — | — | ( 295,529 | ) | ( 295,529 | )
Balance as of June 30, 2025 | 4,765,000 | $ | 47,650 | 7,726,283,805 | $ | 77,262,839 | $ | 25,013,783 | $ | ( 65,363,367 | ) | $ | ( 45,600,098 | ) | $ | ( 8,639,193 | )
Net income | — | — | — | — | — | — | 66,136 | 66,136
Balance as of September 30, 2025 | 4,765,000 | $ | 47,650 | 7,726,283,805 | $ | 77,262,839 | $ | 25,013,783 | $ | ( 65,363,367 | ) | $ | ( 45,533,962 | ) | $ | ( 8,573,057 | )
Series A Preferred | Common | Additional paid-in | Discount to | Accumulated other Comprehensive | Accumulated | Non-controlling shareholders
Shares | Amount | Shares | Amount | Capital | par value | Income | Deficit | interest | Total
Balance as of December 31, 2023 | 4,000,000 | $ | 40,000 | 3,729,053,805 | $ | 37,290,539 | $ | 26,187,925 | $ | ( 27,363,367 | ) | $ | — | $ | ( 42,355,377 | ) | $ | — | $ | ( 6,200,280 | )
Net loss | — | — | — | — | — | — | — | ( 374,203 | ) | — | ( 374,203 | )
Balance as of March 31, 2024 | 4,000,000 | $ | 40,000 | 3,729,053,805 | $ | 37,290,539 | $ | 26,187,925 | $ | ( 27,363,367 | ) | $ | — | $ | ( 42,729,580 | ) | $ | — | $ | ( 6,574,483 | )
Acquisition of minority shareholders interest | — | — | — | — | ( 1,201,842 | ) | — | — | — | 101,842 | ( 1,100,000 | )
Net loss | — | — | — | — | — | — | — | ( 363,433 | ) | ( 101,842 | ) | ( 465,275 | )
Balance as of June 30, 2024 | 4,000,000 | $ | 40,000 | 3,729,053,805 | $ | 37,290,539 | $ | 24,986,083 | $ | ( 27,363,367 | ) | $ | — | $ | ( 43,093,013 | ) | $ | — | $ | ( 8,139,758 | )
Conversion of related party payables to equity | 600,000 | 6,000 | 4,000,000,000 | 40,000,000 | — | ( 38,000,000 | ) | — | — | — | 2,006,000
Net loss | — | — | — | — | — | — | — | ( 1,000,714 | ) | — | ( 1,000,714 | )
Balance as of September 30, 2024 | 4,600,000 | $ | 46,000 | 7,729,053,805 | $ | 77,290,539 | $ | 24,986,083 | $ | ( 65,363,367 | ) | $ | — | $ | ( 44,093,727 | ) | $ | — | $ | ( 7,134,472 | )

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

ETHEMA
HEALTH CORPORATION

UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine months ended September 30, 2025 | Nine months ended September 30, 2024
Operating activities
Net loss | $ | ( 1,114,490 | ) | $ | ( 1,840,192 | )
Adjustment to reconcile consolidated net loss to net cash used in operating activities:
Depreciation and amortization expense | 605,682 | 346,013
Amortization of debt discount | 448,034 | 279,607
Provision for credit losses | 103,012 | —
Amortization of right of use asset | 721,437 | 79,196
Deferred taxation | ( 39,210 | )
Non-cash management fee | — | 480,000
Changes in operating assets and liabilities
Accounts receivable | ( 1,491,105 | ) | 62,671
Prepaid expenses | ( 35,786 | ) | ( 9,066 | )
Other current assets | 61,090 | —
Accounts payable and accrued liabilities | 736,705 | 128,838
Related party accruals | 162,990 | —
Operating lease liabilities | ( 497,494 | ) | 94,979
Net cash used in operating activities | ( 339,135 | ) | ( 377,954 | )
Investing activities
Acquisition of Aria Kentucky, net of cash of $299,492 | 49,492
Acquisition of assets | — | ( 240,000 | )
Acquisition of non-controlling interest | — | ( 625,000 | )
Deposits paid | ( 25,431 | ) | ( 83,393 | )
Purchase of property and equipment | ( 158,716 | ) | ( 85,522 | )
Net cash used in investing activities | ( 134,655 | ) | ( 1,033,915 | )
Financing activities
Repayment of assumed liability | ( 159,085 | ) | —
Proceeds from bank loans | 300,000 | —
Repayment of bank loans | ( 42,623 | ) | —
Proceeds from funding arrangements | 1,902,375 | 542,000
Repayment of funding arrangements | ( 1,720,249 | ) | ( 378,688 | )
Repayment of promissory notes | ( 110,000 | ) | ( 40,000 | )
Proceeds from short-term notes | 310,000 | 1,912,000
Repayment of short term notes | ( 173,377 | ) | ( 801,323 | )
Repayment of government assistance loans | — | ( 11,519 | )
Repayment of finance leases | ( 6,700 | ) | ( 6,304 | )
Proceeds from related party advances | 31,000 | 250,000
Repayment of related party advances | ( 1,200 | ) | ( 11,538 | )
Repayment to related parties | — | ( 39,363 | )
Net cash provided by financing activities | 330,141 | 1,415,265
Effect of exchange rate on cash | 12,908 | ( 11,107 | )
Net change in cash | ( 130,741 | ) | ( 7,711 | )
Beginning cash balance | 244,771 | 68,573
Ending cash balance | $ | 114,030 | $ | 60,862
Supplemental cash flow information
Cash paid for interest | $ | 516,839 | $ | 248,079
Cash paid for income taxes | $ | — | $ | —
Non- cash investing and financing activities
Present value of operating lease liability and operating lease right of use assets recognized in connection with lease commencement | $ | 1,149,642 | $ | —
Present value of operating lease liability and operating lease right of use assets recognized in connection with lease commencement- Related party | $ | 8,865,915 | $ | —
Common shares cancelled | $ | 27,700 | $ | —
Bank loan proceeds applied directly to settle seller’s debt in connection with acquisition | $ | 4,250,000 | $ | —
Related party loan proceeds applied directly to seller’s debt in connection with acquisition | $ | 66,741 | $ | —
Promissory note issued on acquisition of minority shareholders interest | $ | — | $ | 475,000
Conversion of related party payable to common stock | $ | — | $ | 2,000,000
Conversion of related party payable to preferred stock | $ | — | $ | 6,000

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

ETHEMA
HEALTH CORPORATION

NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. | Nature of business

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

Acquisition
of minority stockholders interest in ATHI

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

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

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

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

Acquisition
of Edgewater Recovery Centers, LLC

On
October 22, 2024, ARIA Kentucky LLC (ARIA Kentucky”), a wholly owned subsidiary of the Company, Edgewater Recovery Centers, LLC
(“ERC”) and John Elam (the ”Seller”), entered into an Asset Purchase Agreement (”APA”) pursuant to
which ARIA Kentucky agreed to acquire and ERC agreed to sell to ARIA Kentucky on the closing date (the “Acquisition”) , the
addiction treatment operations owned by ERC and located in Morehead and Paducah, Kentucky through a purchase of the assets of ERC (the
“Acquired Assets”), including; all assets of ERC used in the business of ERC (except for certain specified assets), including
but not limited to all current assets existing at the time of closing, all cash balances and rights to receive cash, all equipment, machinery,
all warranties related to the business and acquired assets, all intangible personal property, intellectual property, all business inventories,
all property leases associated with the business, all assumed contracts, all governmental authorizations; and all information and records,
including patient records, as defined in the APA. Certain of the real property associated with the operations of ERC (the “Real
Property”) is fully leveraged and requires credit and personal guarantees which the Company is unable to provide. The entities
owning the real property were acquired in a separate transaction by BH Properties Fund LLC (“BH Properties”), a company controlled
by Mr. Shawn Leon, the Company’s CEO and therefore a related party. BH Properties through its acquired subsidiaries then entered
into lease agreements with ARIA Kentucky on an arms-length basis, at market related rates.

On
January 9, 2025, ARIA Kentucky consummated the Acquisition of the Acquired Assets of ERC. Pursuant to the terms of the APA, at closing
ARIA Kentucky paid the Seller $250,000 and assumed certain liabilities related to the Acquired Assets, including trade payables and liabilities
under assumed contracts and certain specifically identified liabilities, including a settlement agreement with the United States government
and the State of Kentucky and certain obligations as a borrower or guarantor related to banking obligations.

On
January 9, 2025, in a separate transaction, BH Properties acquired ERC Investments, LLC (”ERCI”), New Journey LLC (“NJ”)
and JDE Properties, LLC (“JDE”) which separately own certain Real Property on which ARIA Kentucky operates and which was
subsequently leased to ARIA Kentucky.

ETHEMA HEALTH CORPORATION

NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2. | Summary
of significant accounting policies

Financial
Reporting

The
(a) unaudited condensed consolidated balance sheets as of September 30, 2025, and as of December 31, 2024, which has been derived from
audited consolidated financial statements, and (b) the unaudited condensed consolidated statements of operations, stockholders’
deficit and cash flows of the Company, have been prepared in accordance with accounting principles generally accepted in the
United States (“US GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine months ended September 30, 2025 are not necessarily indicative of results that
may be expected for the year ending December 31, 2025. These unaudited condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year
ended December 31, 2024, filed with the Securities and Exchange Commission (“SEC”) on May 23, 2025.

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

a) | Use
of estimates

The
preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions, which are evaluated on an ongoing basis, that affect the amounts reported in the unaudited condensed consolidated financial
statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions that it believes
are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets
and liabilities and the amounts of revenues and expenses that are not readily apparent from other sources. Actual results could differ
from those estimates and judgments. In particular, significant estimates and judgments include those related to, the estimated useful
lives of long lived assets, the fair value of long-lived assets and goodwill, including impairment analysis, business combinations, estimates
in revenue recognition, allowance for credit losses, estimates in the fair value of warrants and stock options granted for services or
compensation, estimates in convertible debt, borrowing rate consideration for right-of-use (ROU) lease assets including related lease
liability, and the valuation allowance for deferred tax assets due to continuing operating losses.

Making
estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of
a condition, situation or set of circumstances that existed at the date of the unaudited condensed consolidated financial statements,
which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly,
the actual results could differ significantly from our estimates.

b) | Principals
of consolidation and foreign currency translation

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

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

c) | Business
combinations

The
Company allocates the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed for
business combinations with third parties based on their estimated fair values. The excess of the fair value of purchase consideration
over the fair values of these identifiable assets and liabilities is recorded as goodwill.

Such
valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant
estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired
technology, and trade names from a market participant perspective, useful lives and discount rates. Management's estimates of fair value
are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results
may differ from estimates.

ETHEMA HEALTH CORPORATION

NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2. | Summary
of significant accounting policies (continued)
d) | Cash
and cash equivalents

For
purposes of the statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months
or less and money market accounts to be cash equivalents. The Company maintains cash and cash equivalents with several financial institution
in the USA and Canada. There were no cash equivalents at September 30, 2025 and December 31, 2024.

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

e) | Accounts
receivable

Accounts
receivable primarily consists of amounts due from third-party payors (non-governmental) and private pay patients and is recorded net
of allowances for doubtful accounts and contractual discounts. The Company’s ability to collect outstanding receivables is critical
to its results of operations and cash flows. Accordingly, accounts receivable reported in the Company’s unaudited condensed consolidated
financial statements is recorded at the net amount expected to be received. The Company’s primary collection risks are (i) the
risk of overestimating net revenues at the time of billing that may result in the Company receiving less than the recorded receivable,
(ii) the risk of non-payment as a result of commercial insurance companies denying claims, (iii) the risk that patients will
fail to remit insurance payments to the Company when the commercial insurance company pays out-of-network claims directly to the patient,
(iv) resource and capacity constraints that may prevent the Company from handling the volume of billing and collection issues in
a timely manner, (v) the risk that patients do not pay the Company for their self-pay balances (including co-pays, deductibles and
any portion of the claim not covered by insurance) and (vi) the risk of non-payment from uninsured patients.

f) | Allowance
for doubtful accounts

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

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

g) | Leases

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

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

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

ETHEMA HEALTH CORPORATION

NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2. | Summary
of significant accounting policies (continued)
h) | Property
and equipment

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

i) | Long
lived Assets

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

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

j) | Intangible
assets

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

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

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

Customer
relationships and non-compete agreements identified on the acquisition of the assets of Edgewater Recovery Center, LLC, as discussed
in note 4 below, are amortized over their expected useful lives of fifteen years and five years, respectively.

k) | Goodwill

The
Company allocates the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed based
on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets
and liabilities is recorded as goodwill.

The
Company annually assesses whether the carrying value of its reporting unit exceeds its fair value and, if necessary, records an impairment
loss equal to any such excess. Each interim reporting period, the Company assesses whether events or circumstances have occurred which
indicate that the carrying amount of the reporting
unit exceeds its fair value. If the carrying amount of the reporting unit exceeds its fair value, an asset impairment charge will be
recognized in an amount equal to that excess.

Goodwill
was recently acquired and is assessed annually on December 31, 2025 to see if there are any qualitative or quantitative indications that
impairment of goodwill may be appropriate. At each quarter end a qualitative analysis is performed, to determine if any impairment should
be considered. As of September 30, 2025, there were no indications that an impairment of goodwill may be required.

l) | Derivatives

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

If
the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt
with Conversion and Other Options” for consideration of any beneficial conversion feature.

ETHEMA HEALTH CORPORATION

NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2. | Summary
of significant accounting policies (continued)
m) | Financial
instruments

The
Company initially measures its financial assets and liabilities at fair value, except for certain non-arm’s length transactions.
The Company subsequently measures all its financial assets and financial liabilities at amortized cost.

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

Financial
liabilities measured at amortized cost include bank indebtedness, accounts payable and accrued liabilities, related party payables, taxes
payable, convertible notes payable, promissory notes, funding arrangements, loans payable and related party notes.

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

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

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

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

n) | Related
parties

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

o) | Revenue
recognition

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

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

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

The
Company receives payments from the following sources for services rendered in our U.S. Facility: (i) commercial insurers; and (ii) individual
patients and clients. As the period between the time of service and time of payment is typically one year or less, the Company elected
the practical expedient under ASC 606-10-32-18 and does not adjust for the effects of a significant financing component.

ETHEMA HEALTH CORPORATION

NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2. | Summary
of significant accounting policies (continued)
o) | Revenue
recognition (continued)

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

Settlements
with third-party payors are estimated and recorded in the period in which the related services are rendered and are adjusted in future
periods as final settlements are determined. In the opinion of management, adequate provision has been made for any adjustments and final
settlements. However, there can be no assurance that any such adjustments and final settlements will not have a material effect on the
Company’s financial condition or results of operations. The Company’s receivables were $ 2,435,606 and $ 260,841 at September
30, 2025 and December 31, 2024, respectively. Management believes that these receivables are properly stated and are not likely to be
settled for a significantly different amount.

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

i. | identify the contract
with a customer;
ii. | identify the performance obligations
in the contract;
iii. | determine the transaction price;
iv. | allocate the transaction price to performance obligations
in the contract; and
v. | recognize revenue as the performance obligation is
satisfied.
p) | Income
taxes

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

ASC Topic
740 contains a two-step approach to recognizing and measuring uncertain tax positions taken or expected to be taken in a tax return.
The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will
be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax
benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company recognizes interest and
penalties accrued on unrecognized tax benefits within general and administrative expense. To the extent that accrued interest and penalties
do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction in general and administrative expenses
in the period that such determination is made. The tax returns for fiscal 2020, through 2024 are subject to audit or review by the US
tax authorities, whereas fiscal 2011 through 2024 are subject to audit or review by the Canadian tax authority.

ETHEMA HEALTH CORPORATION

NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2. | Summary
of significant accounting policies (continued)
q) | Net
income (loss) per Share

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

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

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

r) | Stock
based compensation

Stock
based compensation cost is measured at the grant date, based on the estimated fair value of the award and is recognized as expense over
the employee’s requisite service period or vesting period on a straight-line basis. Share-based compensation expense recognized
in the unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2025 and 2024 is based
on awards ultimately expected to vest and has been reduced for estimated forfeitures. This estimate will be revised in subsequent periods
if actual forfeitures differ from those estimates. We have no awards with performance conditions and no awards dependent on market conditions.

s) | Financial
instruments Risks

The
Company is exposed to various risks through its financial instruments. The following analysis provides a measure of the Company’s
risk exposure and concentrations at the balance sheet date, September 30, 2025 and December 31, 2024.

i. | Credit risk

Credit
risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an
obligation. Financial instruments that subject the Company to credit risk consist primarily of accounts receivable.

Credit
risk associated with accounts receivable is mitigated as only a percentage of the revenue billed to health insurance companies is recognized
as income until such time as the actual funds are collected. The revenue is concentrated amongst several health insurance companies located
in the U.S.

ii. | Liquidity risk

Liquidity
risk is the risk the Company will not be able to meet its financial obligations as they fall due. The Company is exposed to
liquidity risk through its working capital deficiency of approximately $ 12.2 million, and an accumulated deficit of
approximately $ 45.5 million. The Company is dependent upon the raising of additional capital in order to implement its business
plan. There is no assurance that the Company
will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on the
Company’s financial condition.

ETHEMA HEALTH CORPORATION

NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2. | Summary
of significant accounting policies (continued)
s) | Financial
instruments Risks (continued)
iii. | Market risk

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

a. | Interest
rate risk

Interest
rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
interest rates. The Company is exposed to interest rate risk on its bank loans, assumed debt, convertible debt, promissory notes, short
term loans, funding arrangements, third party loans and government assistance loans as of September 30, 2025.

b. | Currency risk

Currency
risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange
rates. The Company has limited exposure to assets and liabilities denominated in foreign currencies. The Company has not entered into
any hedging agreements to mitigate this risk.

c. | Other price risk

Other
price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the
individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market.

d. | Concentration of customers

During
the three and nine months ended September 30, 2025 and 2024, the Company derived approximately 100% of its revenues from a group of commercial
healthcare insurers. Any adverse change in policy towards the treatment of substance abuse patients adopted by a majority of the group
of commercial healthcare insurers will have a significant impact on the Company.

t) | Recent
accounting pronouncements

The
Financial Accounting Standards Board (“FASB”) issued additional updates during the nine months ended September 30, 2025.
None of these standards are either applicable to the Company or require adoption at a future date and none are expected to have a material
impact on the Company’s unaudited condensed consolidated financial statements upon adoption.

u) | Comprehensive
income (loss)

Comprehensive
income (loss) is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding
transactions resulting from investments from owners and distributions to owners. The Company does not have any comprehensive income (loss)
for the periods presented.

v) | Segment
information

The
Company’s Chief Executive Officer and President (“CEO”) is our chief operating decision maker (“CODM”)
and evaluates performance and makes operating decisions about allocating resources based on financial data presented on a consolidated
basis. Because our CODM evaluates financial performance on a consolidated basis, the Company has determined that it operates as a single
reportable segment composed of the financial results of Ethema Health Corporation.

ETHEMA HEALTH CORPORATION

NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3. | Going
concern

The
accompanying unaudited condensed consolidated financial statements have been prepared on a going-concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course of business. As
of September 30, 2025, the Company had an accumulated deficit of $ 45.5 million, working capital deficiency of $ 12.2 million and
total liabilities in excess of total assets of $ 8.6 million. These matters raise substantial doubt about Company’s ability
to continue as a going concern.

Management
believes that current available resources will not be sufficient to fund the Company’s planned expenditures over the next 12 months.
Accordingly, the Company will be dependent upon the raising of additional capital through placement of common shares, and/or debt financing
in order to implement its business plan and generating sufficient revenue in excess of costs. If the Company raises additional capital
through the issuance of equity securities or securities convertible into equity, stockholders will experience dilution, and such securities
may have rights, preferences or privileges senior to those of the holders of common stock or convertible senior notes. If the Company
raises additional funds by issuing debt, the Company may be subject to limitations on its operations, through debt covenants or other
restrictions. If the Company obtains additional funds through arrangements with collaborators or strategic partners, the Company may
be required to relinquish its rights to certain geographical areas, or techniques that it might otherwise seek to retain. There is no
assurance that the Company will be successful with future financing ventures, and the inability to secure such financing may have a material
adverse effect on the Company’s financial condition.

Based
on the uncertainties described above, the Company believes its business plan does not alleviate the existence of substantial doubt about
its ability to continue as a going concern within one year from the date of the issuance of these unaudited condensed consolidated financial
statements. The accompanying unaudited condensed consolidated financial statements do not include any adjustments to the amounts and
classifications of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.

4. | Acquisition
of the business of Edgewater Recovery Center

On
October 22, 2024, ARIA Kentucky LLC (ARIA Kentucky”), a wholly owned subsidiary of the Company, Edgewater Recovery Centers, LLC
(“ERC”) and John Elam (the ”Seller”), entered into an Asset Purchase Agreement (”APA”) pursuant to
which ARIA Kentucky agreed to acquire and ERC agreed to sell to ARIA Kentucky on the closing date (the “Acquisition”), the
addiction treatment operations owned by ERC and located in Morehead and Paducah, Kentucky through a purchase of the assets of ERC (the
“Acquired Assets”), including; all assets of ERC used in the business of ERC (except for certain specified assets), including
but not limited to all current assets existing at the time of closing, all cash balances and rights to receive cash, all equipment, machinery,
all warranties related to the business and acquired assets, all intangible personal property, intellectual property, all business inventories,
all property leases associated with the business, all assumed contracts, all governmental authorizations; and all information and records,
including patient records, as defined in the APA. Certain of the real property associated with the operations of ERC (the “Real
Property”) is fully leveraged and requires credit and personal guarantees which the Company is unable to provide. The entities
owning the real property were acquired in a separate transaction by BH Properties Fund LLC (“BH Properties”), a company controlled
by Mr. Shawn Leon, the Company’s CEO and therefore a related party. BH Properties through its acquired subsidiaries then entered
into lease agreements with ARIA Kentucky on an arms-length basis, at market related rates.

On
January 9, 2025, ARIA Kentucky consummated the Acquisition of the Acquired Assets of ERC. Pursuant to the terms of the APA, at closing
ARIA Kentucky paid the Seller $ 250,000 and assumed certain liabilities related to the Acquired Assets, including trade payables and liabilities
under assumed contracts and certain specifically identified liabilities, including a settlement agreement with the United States government
and the State of Kentucky and certain obligations as a borrower or guarantor related to banking obligations.

ETHEMA
HEALTH CORPORATION

NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4. | Acquisition
of the business of Edgewater Recovery Center (continued)

The provisional
allocation of assets acquired and liabilities assumed is as follows:

The
amount of pro forma revenue and earnings which would have been included in the Company’s unaudited condensed consolidated statement
of operations for the period ended September 30, 2025, and the revenue and earnings of the combined entity had the acquisition date been
January 1, 2024, is presented as follows:

Revenue | Net
income (loss)
Actual for the period from acquisition
to September 30, 2025 | $ | 7,835,447 | $ | 151,516
2025 supplemental pro-forma from January 1, 2025 to
September 30, 2025 | $ | 14,128,289 | $ | ( 1,027,719 | )
2024 supplemental pro-forma from January 1, 2024 to
September 30, 2024 | $ | 12,087,744 | $ | ( 2,180,584 | )

The
supplemental pro forma information for the nine months ended September 30, 2025 was adjusted to exclude (i) non-recurring legal fees
of $ 35,000 incurred on the acquisition of the business
of Edgewater and (ii) amortization of intangibles of $ 4,530 and the tax effect thereon of $ 1,178 .

The
supplemental pro forma information for the nine months ended September 30, 2024 was adjusted to exclude (i) $ 2,249,633 related
to a settlement reached with the Department of Justice by Edgewater and is unrelated to current and future operations and (ii) amortization
of intangibles of $ 155,000 and the tax effect thereon of $ 40,300 .

ETHEMA HEALTH CORPORATION

NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5. | Property and equipment

Property
and equipment consists of the following:

September
30, 2025 | December
31, 2024
Useful lives | Cost | Accumulated
depreciation | Net
book value | Net
book value
Leasehold improvements | Life of lease | $ | 608,396 | $ | ( 178,547 | ) | $ | 429,849 | $ | 376,045
Furniture and fixtures | 6 years | 899,163 | ( 202,846 | ) | 696,317 | 303,429
Vehicles | 5 years | 224,507 | ( 73,307 | ) | 151,200 | 15,699
Computer equipment | 3 years | 13,389 | ( 7,409 | ) | 5,980 | 4,515
Capital work in progress | — | 40,420 | — | 40,420 | —
$ | 1,785,875 | $ | ( 462,109 | ) | $ | 1,323,766 | $ | 699,688

Depreciation
expense for the three months ended September 30, 2025 and 2024 was $ 65,032 and
$ 33,326 , respectively, and for the nine months ended September 30, 2025 and 2024 was $ 186,391 and $ 77,528 , respectively.

6. | Intangibles

As
disclosed in note 4 above, in terms of an APA agreement entered into on October 22, 2024, on January 9, 2025, the Company consummated
the acquisition of the Acquired Assets of ERC, which included a provisional valuation of customer relationships of $ 2,944,000 and non-compete agreements of $ 52,000 .

Intangible
assets consist of the following:

Useful lives | September
30, 2025 | December
31, 2024
Cost | Accumulated
amortization | Net
book value | Net
book value
Customer relationships | 15 years | $ | 2,944,000 | $ | ( 143,215 | ) | $ | 2,800,785 | $ | —
Non-compete agreement | 5 years | 52,000 | ( 7,591 | ) | 44,409 | —
Health care Provider license | 5 years | 1,789,903 | ( 1,521,417 | ) | 268,486 | 536,971
$ | 4,785,903 | $ | ( 1,672,223 | ) | $ | 3,113,680 | $ | 536,971

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 $ 141,164 and $ 89,495 in amortization
expense for finite-lived assets for each of the three months ended September 30, 2025 and 2024, respectively and $ 419,291 and 268,485 for each of the nine months ended September 30, 2025 and 2024.

7. | Goodwill

Goodwill
represents the excess purchase price paid over the fair value of assets acquired, including any other identifiable intangible assets.

Amount
Opening balance as of January 1, 2025 | $ | —
Acquisition of the assets and liabilities assumed of Edgewater Recovery Center | 3,493,850
Closing balance as of September 30, 2025, provisional | $ | 3,493,850

The
Company evaluates goodwill for impairment on an annual basis during the last month of each year and at an interim date if indications
of impairment exist. Goodwill impairment is determined by comparing the fair value of the reporting unit to its carrying amount with
an impairment being recognized only when the fair value is less than carrying value and the impairment is deemed to be permanent in nature.

ETHEMA HEALTH CORPORATION

NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8. | Leases

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

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

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

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

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

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

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

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

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

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

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

As
disclosed in note 4 above, in terms of an APA agreement entered into on October 22, 2024, on January
9, 2025, the Company consummated the acquisition of the Acquired Assets of ERC. Simultaneously, with the acquisition of the assets of
ERC, BH Properties, a company controlled by Mr. Shawn Leon, the Company’s CEO and a related
party, acquired certain of the real property associated with the operations of ERC.

The
acquired properties are fully leveraged and required personal guarantees which the Company was unable to provide. The
entities owning the real property were acquired in a separate transaction by BH Properties, which then, through its acquired subsidiaries
entered into lease agreements with ARIA Kentucky on an arms-length basis, at market related rates.

ETHEMA HEALTH CORPORATION

NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8. | Leases (continued)

The Company
entered into 7 lease agreements, effective January 1, 2025, with its related party, BH Properties, all of which were for an initial period
of five years with an option to extend for an additional five years, since the transaction is between related parties the option is likely
to be exercised, the lease agreements all include an annual escalation of 1.5% of the base rent and the lessee is responsible for utilities,
property taxes, repairs and maintenance expenditure and insurance costs.

The Company,
through its subsidiary Aria Kentucky, entered into 2 lease agreements, effective July 1, 2025, with its related party, BH Properties
and its subsidiary, Viking Assets, LLC. The first lease is for property situated at 417 South 4 th Street, Paducah, Kentucky,
with an annual base rent of $96,000 and the second lease is for property situated at 425 South 6 th Street, Paducah Kentucky,
with an annual base rent of $72,000. Each lease is for an initial period of four years and six months with an option to extend for an
additional five years, since the transaction is between related parties the option is likely to be exercised. Each lease agreement includes
an escalation of 1.5% of the base rent, commencing on January 1, 2026, and annually thereafter. The Company is responsible for utilities,
property taxes, repairs and maintenance expenditure and insurance costs.

The details of the related
party property leases are as follows:

The Company
also entered into a third party lease agreement with Trent Developments, LLC for a property located at 141, 141.5 and 143 East Main Street,
Morehead Kentucky. The lease is for a period of 5 years commencing on January 1, 2025, with a base annual rental of $138,000, escalating
by 1.5% on the second anniversary of the lease term and each anniversary thereafter.

In addition,
the Company entered into an assignment of lease agreement with MAT Properties, LLC for a property located at 154 S Owens Road, Morehead
Kentucky. The original lease was modified and the term of the lease was extended to 2 years commencing on January 1, 2025, ending on
December 31, 2027. The base rental of the lease is $180,000 per annum with no escalations.

To
determine the present value of minimum future lease payments for the operating leases entered into, the Company used the borrowing rate
of 7.72% at which it had recently secured to consummate the acquisition of the assets of Edgewater Recovery and is indicative of the
borrowing costs the Company would expect to incur on asset funding.

The
present value of the future minimum lease payments of the properties leased from related parties was $7,622,084 on January 9, 2025 and
$1,243,831 on July 1, 2025, totaling $8,865,915 and the present value of future lease payments of properties leased from third parties
was $1,149,642 on January 1, 2025.

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

September 30, 2025 | December 31, 2024
Non-current assets
Right-of-use assets – finance leases, net of depreciation, included in Property and equipment | $ | 7,307 | $ | 15,699
Right-of-use assets – operating leases, net of amortization | 10,682,105 | 9,920,592
Right-of-use assets – operating leases, related party, net of amortization | 8,532,607 | —
$ | 19,222,019 | $ | 9,936,291
18

ETHEMA HEALTH CORPORATION

NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8. | Leases (continued)

Lease
costs consists of the following:

Nine months ended September 30,
2025 | 2024
Finance lease cost:
Depreciation of right-of-use assets | $ | 8,392 | $ | 8,392
Interest expense on finance lease liabilities | 672 | 1,106
9,064 | 9,498
Operating lease costs
Third parties | $ | 1,432,530 | $ | 910,076
Related parties | 854,245 | —
2,286,775 | 910,076
Lease cost | $ | 2,295,839 | $ | 919,574

Other
lease information:

Nine months ended September 30,
2025 | 2024
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases | $ | ( 672 | ) | $ | ( 1,106 | )
Operating cash flows from operating leases – third parties | ( 1,315,360 | ) | ( 738,760 | )
Operating cash flows from operating leases – related parties | ( 552,376 | ) | —
Financing cash flows from finance leases | ( 6,700 | ) | ( 6,266 | )
Cash paid for amounts included in the measurement of lease liabilities | $ | ( 1,875,108 | ) | $ | ( 746,132 | )
Weighted average lease term – finance leases | 1 years and 3 months | 2 years and 2 months
Weighted average remaining lease term – operating leases | 13 years and 1 mont h | 17 years and 10 months
Discount rate – finance leases | 6.52 | % | 6.58 | %
Discount rate – operating leases | 7.68 | % | 7.60 | %

Maturity of
Leases

Finance
lease liability

The
amount of future minimum lease payments under finance leases at September 30, 2025 is as follows:

Amount
Remainder of 2025 | $ | 2,457
2026 | 6,195
2027 | 1,707
10,359
Imputed interest | ( 675 | )
Total finance lease liability | $ | 9,684
Disclosed as:
Current portion | $ | 7,645
Non-Current portion | 2,039
Lease liability | $ | 9,684
19

ETHEMA HEALTH CORPORATION

NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8. | Leases (continued)

Operating
lease liability

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

Amount
Remainder of 2025 | $ | 716,344
2026 | 2,865,374
2027 | 2,728,600
2028 | 2,411,826
2029 | 2,411,826
2029 and thereafter | 20,065,782
Total undiscounted minimum future lease payments | 31,199,752
Imputed interest | ( 11,433,134 | )
Total operating lease liability | $ | 19,766,618
Disclosed as:
Current portion – third parties | $ | 524,292
Current portion – related parties | 511,205
Non-current portion – third parties | 10,647,157
Non-current portion – related parties | 8,083,964
Lease liability | $ | 19,766,618
9. | Bank loans

As
disclosed in note 4 above, in terms of an APA agreement entered into on October 22, 2024, on January 9, 2025, the Company consummated
the acquisition of the Acquired Assets of ERC ad certain assumed liabilities. In order to secure the acquisition of the assets, the Company
raised commercial loans from Peoples Bank to settle other bank debt related to Edgewater and its founder.

The
bank loans are disclosed as follows:

Interest
rate | Maturity
Date | Principal | Interest | September
30, 2025 | December
31, 2024
Peoples Bank
Promissory note | 7.500 | % | February 27, 2028 | $ | 4,250,000 | $ | 48,698 | $ | 4,298,698 | $ | —
Commercial loan | 7.750 | % | December 22, 2026 | 57,456 | 99 | 57,555 | —
Commercial loan | 7.50 | July 1, 2026 | 300,000 | 1,933 | 301,933
$ | 4,607,456 | $ | 50,730 | $ | 4,658,186 | $ | —
Disclosed as follows
Bank loans - current portion | $ | 755,960 | $ | —
Bank loans – long term portion | 3,902,226 | —
$ | 4,658,186 | $ | —

On
January 6, 2025, the Company entered into a Loan and Security Agreement (“LSA”) with Peoples Bank of Hazard (“Peoples”),
whereby Peoples advanced the Company the following funds:

· | Promissory note

$4,250,000
to settle existing debt owed by the founder of Edgewater Recover Center to Peoples. The promissory note bears interest at 7.5% per annum
calculated on a 360 day year and matures on February 27, 2028. The Company is required to make monthly interest payments only for the
first six months of the promissory note, commencing on February 6, 2025 until July 6, 2025, for the next twelve months, monthly repayments
of $50,000 of principal and interest, commencing on August 6, 2025 to July 6, 2026, for the following twelve months, monthly repayments
of $100,000 of principal and interest, commencing on August 6, 2026 to July 6, 2027, for the following six months, monthly repayment
of $125,000 of principal and interest, commencing on August 6, 2027 to January 6, 2028, and a final payment of the remaining principal
and interest on February 27, 2028. The loan is secured by properties belonging to BH Properties, LLC, and personal guarantees by Shawn
Leon, the Company’s CEO.

The
Company made interest payments in the aggregate amount of $185,052 during the nine months ended September 30, 2025.

ETHEMA HEALTH CORPORATION

NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

9. | Bank loans (continued)
· | Commercial
loan

The
Company originally assumed the obligations of an auto loan from Edgewater with a principal balance owing of $100,000 and accrued interest
thereon of $4,044, bearing interest at 8.5% per annum. On March 20, 2025, the Company repaid $30,720 of principal and interest outstanding
on the loan and entered into a new commercial loan agreement of $75,000 bearing interest at 7.75% per annum, with monthly repayments
of $3,392.

The
Company repaid principal of $42,623 and interest of $8,446, totaling $51,069 during the nine months ended September 30, 2025.

· | On June 30, 2025, the Company
entered into a commercial promissory note, whereby the Company was advanced $300,000, net of loan origination and documentation fees
of $3,500, for net proceeds of $296,500. The loan bears interest at a variable interest rate of the New York prime rate plus 0.5%,
currently the interest rate is 7.5% and is calculated on an actual over 360 day basis. The interest rate will never exceed
10% per annum or fall below 6% per annum. The loan matures on 1 July 2026, or on demand by the lender. Monthly interest only payments
are to be made. The loan may be prepaid without penalty and any funds prepaid may be re-borrowed by the Company until the maturity
date, unless precluded from doing so by the lender. The loan is secured by a pledge of the membership interest in Aria Kentucky,
LLC and blanket liens on all of the assets of Aria Kentucky, LLC, including accounts receivable and all other business assets. In
addition the lender holds guarantees from Ethema Health Corporation and Shawn Leon.

The Company
paid interest of $ 4,200 during the nine months ended September 30, 2025.

10. | Assumed liability

Edgewater
Recover Center had entered into a settlement agreement with the Department of Justice and the Department of Health and Human Services
and the State of Kentucky and the Department of Medicaid Services in Kentucky, relating to false claims submitted to Medicare. The balance
of the liability assumed by the Company amounted to a principal of $1,658,105 and accrued interest thereon of $44,614. The balance accrued
interest at 4.75% per annum and is repayable in thirteen installments, the first installment of $44,614 was paid prior to the consummation
of the acquisition transaction and a further twelve installments commencing on February 1, 2025 to December 1, 2026.

The
Company repaid principal of $159,085 and accrued interest of $31,329, totaling $190,414 during the nine months ended September 30, 2025.

Interest
rate | Maturity
Date | Principal | Interest | September 30, 2025 | December
31, 2024
Assumed liability | 4.75 | % | December 1,
2026 | $ | 1,499,021 | $ | 29,847 | $ | 1,528,868 | $ | —
Disclosed as follows
Assumed liability - current
portion | $ | 909,858 | $ | —
Assumed liability - long term portion | 619,010 | —
$ | 1,528,868 | $ | —
11. | Short-term convertible notes

The short-term convertible notes consist of the following:

Interest
rate | Maturity
Date | Principal | Interest | September
30, 2025 | December
31, 2024
Auctus Fund, LLC | 0.0 | % | On Demand | $ | 6 0,000 | $ | 15,000 | $ | 75,000 | $ | 70,000
Joshua Bauman | 10.0 | % | On Demand | 77,576 | 2,098 | 79,674 | 133,844
Series N convertible notes | 6.0 | % | December 31,
2025 | 2,779,000 | 1,065,310 | 3,844,310 | 3,769,401
$ | 2,916,576 | $ | 1,082,408 | $ | 3,998,984 | $ | 3,973,245
21

ETHEMA HEALTH CORPORATION

NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

11. | Short-term convertible notes
(continued)

Auctus
Fund, LLC

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

On
June 15, 2020, The Company entered into an amended agreement with Auctus whereby the conversion feature of the note was removed and the
Company agreed to discharge the principal amount of the note by nine equal monthly installments of $25,000 commencing in October
2020. During the year ended December 31, 2021, the Company repaid Auctus the principal sum of $50,000.

During
March 2022, the Company paid $20,000 of principal on the convertible note, thereby reducing the principal outstanding to $80,000.

During
February 2023, the Company paid $10,000 of principal on the convertible note, thereby reducing the principal outstanding to $70,000.
The note matured May 7, 2020, Auctus Fund LLC has not declared a default and we are in constant discussion with the lender on settling
the note.

On
May 13, 2025, the Company entered into an Amendment #2 to the convertible promissory note, whereby the Company will repay the balance
outstanding as follows; $10,000 on June 1, 2025, $15,000 on July 1, 2025 and three installments of $20,000 monthly thereafter.

The
Company repaid $ 10,000 of principal during the nine months ended September 30, 2025.

Joshua
Bauman

On
August 9, 2023, the Company issued a convertible promissory note to Mr. Bauman, in the aggregate principal amount of $150,000. The note
bears interest at 10.0% per annum and matures on August 9, 2024. The note is convertible into shares of common stock at a conversion
price at the option of the holder at $0.001 per share, adjusted for anti-dilution provisions. The note is convertible into common stock
at the option of the holder after the expiration of six months from the issuance date, in addition, should the note reach its maturity
date, August 9, 2024, the note will automatically convert into shares of common stock at the conversion price, subject to anti-dilution
provisions. The note was not automatically converted into shares of common stock upon maturity and remains outstanding, although
the note is in technical default, a default has not been declared and we are negotiating with the note holder on amending the terms or
repaying the note.

During
November 2023 and December 2023, the Company repaid $29,224 and $4,597 in principal and interest, respectively. No
repayments were made during the year ended December 31, 2024.

During
the nine months ended September 30, 2025, the Company repaid principal of $43,200 and interest of $18,800 totaling
$62,000.

Series
N convertible notes

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

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

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

During
the nine months ended September 30, 2025, the Company repaid interest of $49,804 on the Series N convertible notes.

ETHEMA HEALTH CORPORATION

NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

12. | Short-term notes

The short term notes consist
of the following:

Description | Interest Rate | Maturity date | Principal | Accrued Interest | Unamortized debt discount | September 30, 2025 Amount | December 31, 2024 Amount
LXR Biotech | 6.0 | % | On Demand | $ | 95,633 | $ | 37,147 | $ | — | $ | 132,780 | $ | 124,309
Mirage Realty | 18.0 | % | May 15, 2025 | 600,000 | 13,500 | — | 613,500 | 613,500
Third Party | 12.0 | % | On demand | 247,525 | 27,875 | — | 275,400 | 251,899
Revolving line of credit | 120.0 | % | August 13, 2024 | 64,423 | 22,763 | — | 87,186 | 162,576
120.0 | % | September 30, 2024 | 181,000 | 257,261 | — | 438,261 | 258,589
M. Baldassara | 10.0 | % | December 31, 2025 | 120,000 | 4,307 | — | 124,307 | —
R. Baldassara | 10.0 | % | December 31, 2025 | 120,000 | 4,307 | — | 124,307 | —
Series R Promissory notes | 7.5 | % | March 31, 2025 | 1,155,000 | 142,024 | — | 1,297,024 | 1,164,250
Total notes payable | $ | 2,583,581 | $ | 509,184 | $ | — | $ | 3,092,765 | $ | 2,575,123

LXR Biotech

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

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

Mirage
Realty, LLC

On May
15, 2024, the Company, entered into a senior secured promissory note in the aggregate principal amount of $600,000. The note earns interest
at 6% per annum for the first two months and 9% per annum for the following two months and 18% for the next two months. The note matured
on November 15, 2024.

On October
29, 2024, the maturity date of the note was extended to January 2025 with interest accruing thereon at 18% per annum. On February 13,
2025, we received a further extension on this note to May 15, 2025 with interest thereon remaining at 18% per annum. The Company is negotiating
with the note holder and continues to accrue interest at 18% per annum.

During
the nine months ended September 30, 2025, the Company paid interest of $81,000 on the note.

Third
party note

On April
12, 2019, Eileen Greene, a related party, assigned CDN$1,000,000 of the amount owed by the Company to her, to a third party. The
loan bears interest at 12% per annum which the Company agreed to pay.

The balance
outstanding on the note consists of principal of CDN$344,580 ($247,525) and interest accrued thereon of CDN$38,804 ($27,875) totaling
CDN$383,384 ($275,400). During the nine months ended September 30, 2025, the Company paid interest of CDN$10,000 ($7,305).

ETHEMA HEALTH CORPORATION

NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

12. | Short-term notes (continued)

Revolving
line of credit

On February
1, 2024 Ethema Health Corporation, American Treatment Holdings Inc, and Evernia Health Center LLC entered into a secured revolving line
of credit agreement (“Agreement”) with Testing 123, LLC. The draw under the Agreement is limited to a maximum of 80% of the
Receivables balance as provided to the Lender, subject to the maximum borrowing under the Term Loan Agreement of $1,000,000. The interest
on the term loan is 5% per month and the default interest rate is 10% per month. The revolving credit line is valid for a period of two
years and each draw will have a maturity date that is two months from the draw date, with an origination fee of $1,000 per draw. Each
loan may be prepaid at any time without penalty. The Company will pay a commitment fee of $40,000 to the borrower in common shares on
the completion of a public offering, unless no such offering takes place within a year, whereby the outstanding principal will be increased
by $40,000. The revolving credit line is secured by all assets, tangible and intangible of the Company and its direct and indirect subsidiaries,
American Treatment Holdings, Inc. and Evernia Health Center, LLC.

On September
4, 2025, the Company received proceeds of $70,000 on a line of credit advance of $73,500, repayable on September 15, 2025. This amount
was repaid and the additional $3,500 was recorded as an amortization of debt discount.

During
the nine months ended September 30, 2025, the Company repaid principal of $120,177 and interest of $103,323.

M.
Baldassara and R. Baldassara

On May
22, 2025, the Company entered into promissory note agreements with each of M. Baldassara and R. Baldassara for an aggregate principal
amount of $120,000 each, bearing interest at 10% per annum and repayable on December 31, 2025. The promissory notes are unsecured.

Series
R senior secured promissory notes

Between
April 15, 2024 and May 10, 2024, the Company entered into securities purchase agreements with accredited investors whereby the Company
issued 6 senior secured promissory notes with an aggregate issue price of $660,000 for gross proceeds of $600,000. The promissory notes
bear interest at 7.5% per annum, interest is payable quarterly at an increasing rate of 3%, 6%, 9% and 12% of the principal outstanding.
The notes matured on March 31, 2025 and have not been repaid as yet, the Company is negotiating with the noteholders on extension and
settlement options.

Between
May 2, 2024 and May 10, 2024, the Company entered into exchange agreements with three investors, whereby the investors exchanged three
series N notes with a principal amount outstanding of $450,000 for senior secured Series R promissory notes with an aggregate issue price
of $495,000. The promissory notes bear interest at 7.5% per annum, interest is payable quarterly at an increasing rate of 3%, 6%, 9%
and 12% of the principal outstanding. The notes matured on March 31, 2025 and are currently being re-negotiated with the note holders.

During
the nine months ended September 30, 2025, the Company paid interest of $37,679 on the Series R senior secured promissory notes.

13. | Promissory Note

On
May 15, 2024, the Company entered into a Stock Purchase Agreement whereby it acquired the remaining 25% of ATHI representing 5,000,000 shares
from the minority stockholder for gross proceeds of $ 1,100,000 . The Company paid an initial deposit of $ 25,000 and on closing an
additional $ 600,000 . The Company issued a non-interest bearing promissory note for the remaining balance of $ 475,000 , maturing on November
15, 2025, which promissory
note is repayable in instalments of $10,000 a month on each monthly anniversary date of the agreement for months one to eight (eight
instalments) and months ten through seventeen (eight instalments), and payments of $157,500 on month nine and month eighteen, for a total
of $475,000.

September 30, 2025 | December 31, 2024
Opening balance | $ | 405,000 | $ | —
Promissory note issued | — | 475,000
Repayments | ( 110,000 | ) | ( 70,000 | )
$ | 295,000 | $ | 405,000

During the nine months ended
September 30, 2025, the Company repaid $110,000 of the principal outstanding on the promissory note.

ETHEMA HEALTH CORPORATION

NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

14. | Funding arrangements, net

May
30, 2024 funding

On May
30, 2024, the Company, through its subsidiary Evernia Health Center, LLC (“Evernia”), entered into a financing arrangement
with Fortunate Sons (“Fortunate”), whereby it received proceeds of $300,000. The Company also incurred fees of $5,000, resulting
in net proceeds of $295,000, in addition the Company incurred an additional fee of $75,000 related to this funding, resulting in total
fees and discount of $155,000 which was amortized over the original term of the funding. The Company is obliged to pay $10,750 per
week commencing 4 weeks after the agreement was entered into until the amount of $375,000 is paid in full. The maturity date of
this funding was February 24, 2025, however the original payment schedule was not adhered to, and we are in constant communication with
Fortunate regarding repayment of the balance.

The discount
and fees totaling $155,000 associated with this funding was capitalized and was being amortized using the effective interest method over
the initial repayment period. The Company has repaid $204,250 and the balance outstanding as of September 30, 2025 was $170,750.

August
30, 2024 funding

On August
30, 2024, the Company, through its subsidiary Evernia, entered into a financing arrangement with Itria Ventures LLC (“Itria”),
whereby it received proceeds of $247,000, net of discount and fees of $65,500. The Company is obliged to pay $8,013 per week until the
amount of $312,500 is paid in full, the maturity date of this funding was June 3, 2025.

The discount
and fees totaling $65,500 associated with this funding was capitalized and was being amortized using the effective interest method over
the repayment period. The Company made weekly cash payments of $8,013 totaling $232,372 and settled the outstanding balance of $88,141
on March 25, 2025, partially out of the proceeds of an additional financing arrangement entered into on March 25, 2025, thereby extinguishing
the debt and accelerating the amortization of the remaining discount and fees.

October
9, 2024 funding

On October
9, 2024, the Company, through its subsidiary Evernia, entered into a financing arrangement with Itria, whereby it received proceeds of
$148,000, net of discount and fees of $39,500. The Company is obliged to pay $4,808 per week until the amount of $187,500 is
paid in full. The maturity date of this funding was July 10, 2025.

The discount
and fees totaling $39,500 associated with this funding was capitalized and is being amortized using the effective interest method over
the repayment period. The Company made weekly cash payments of $4,808 totaling $57,692 and settled the outstanding balance of $119,308,
net of an early settlement discount of $10,500, thereby extinguishing the debt.

January
6, 2025 funding

On January
6, 2025, the Company, through its subsidiary Evernia, entered into a financing arrangement with Itria, whereby it received proceeds of
$247,000, net of discount and fees of $60,500. The Company is obliged to pay $7,885 per week until the amount of $307,500 is
paid in full. The maturity date of this funding is October 6, 2025.

The discount
and fees totaling $60,500 associated with this funding was capitalized and is being amortized using the effective interest method over
the repayment period. The Company made weekly cash payments of $7,885 totaling $157,692 and settled the outstanding balance with
a payment of $157,692 out of the proceeds of the May 28, 2025 funding, resulting in an overpayment of $7,885, which was refunded on August
12, 2025. The settlement resulted in the extinguishment of the debt and the acceleration of the remaining unamortized debt discount of
$21,890.

February
13, 2025 funding

On February
13, 2025, the Company, through its subsidiary Evernia, entered into financing arrangement with CFG Merchant Solutions, LLC (“CFG”),
whereby it received proceeds of $124,375, net of discount and fees of $41,875.
The Company is obliged to pay $3,778 per week until the amount of $166,250 is paid in full. The maturity date of this funding
is December 19, 2025.

The discount
and fees totaling $41,875 associated with this funding was capitalized and is being amortized using the effective interest method over
the repayment period. The Company made weekly cash payments of $3,778 totaling $120,909, and the balance outstanding at September
30, 2025 was $41,989, net of debt discount of $3,352.

ETHEMA HEALTH CORPORATION

NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

14. | Funding arrangements, net (continued)

February
18, 2025 funding

On February
18, 2025, the Company, through its subsidiary Evernia, entered into a financing arrangement with Purpletree Funding, LLC (“Purpletree”),
whereby it received proceeds of $74,250, net of discount and fees of $25,500. The Company is obliged to pay $3,563 per week until
the amount of $99,750 is paid in full. The maturity date of this funding is September 2, 2025.

The discount
and fees totaling $25,500 associated with this funding was capitalized and is being amortized using the effective interest method over
the repayment period. The Company made weekly cash payments of $3,563 totaling $99,750, thereby extinguishing the debt.

March
25, 2025 funding

On March
25, 2025, the Company, through its subsidiary Evernia, entered into a financing arrangement with Itria, whereby it received proceeds
of $222,250, net of discount and fees of $70,250. The Company is obliged to pay $7,500 per week until the amount of $292,500 is
paid in full. The Company used $88,141 of the proceeds to settle the August 30, 2024 funding. The maturity date of this funding is December
24, 2025.

The discount
and fees totaling $70,250 associated with this funding was capitalized and is being amortized using the effective interest method over
the repayment period. The Company made weekly cash payments of $7,500, totaling $157,500 and settled the outstanding balance with a payment
of $147,169 out of the proceeds of the August 20, 2025, resulting in an overpayment of $12,869. This refund is expected in November 2025.

April
9, 2025 funding

On April
9, 2025, the Company, through its subsidiary Aria Kentucky, LLC (“Aria KY”) entered into a financing arrangement with Itria,
whereby it received proceeds of $494,500, net of discount and fees of $130,500. The Company is obliged to pay $12,019 per week until
the amount of $625,000 is paid in full. The maturity date of this funding is April 14, 2026.

The discount
and fees totaling $130,500 associated with this funding was capitalized and is being amortized using the effective interest method over
the repayment period. The Company made weekly cash payments of $12,019, totaling $288,462 and the balance outstanding at September 30,
2025 was $295,726, net of debt discount of $40,812.

May
28, 2025 funding

On May
28, 2025, the Company, through its subsidiary Evernia, entered into a financing arrangement with Itria, whereby it received proceeds
of $296,500, net of discount and fees of $81,500. The Company used $157,692 of the proceeds to settle the January 6, 2025 funding. The
Company is obliged to make weekly cash payments of $7,269 until the amount of $378,000 is paid in full. The maturity date of this funding
is December 24, 2025.

The discount
and fees totaling $81,500 associated with this funding was capitalized and is being amortized using the effective interest method over
the repayment period. The Company made weekly cash payments of $7,269, totaling $123,577 and the balance outstanding at September 30,
2025 was $217,200, net of debt discount of $37,223.

June
19, 2025 funding

On June
19, 2025, the Company, through its subsidiary Aria KY, entered into a financing arrangement with Itria, whereby it received proceeds
of $97,500, net of discount and fees of $27,500. The Company is obliged to pay $3,205 per week until the amount of $125,000 is
paid in full. The maturity date of this funding is March 19, 2026.

The discount
and fees totaling $27,500 associated with this funding was capitalized and is being amortized using the effective interest method over
the repayment period. The Company made weekly cash payments of $3,205, totaling $44,872 and the balance outstanding at September 30,
2025 was $68,765, net of debt discount of $11,363.

August
20, 2025 funding

On August
20, 2025, the Company, through its subsidiary Evernia, entered into a funding arrangement with Itria, whereby it received proceeds of
$346,000, net of discount and fees of $105,500, The Company used $147,869 of the proceeds to repay the March 25, 2025 funding. The Company
is obliged to pay $8,683 per week until the amount of $451,500 is paid in full. The maturity date of this funding is August
20, 2026.

The discount
and fees totaling $105,500 associated with this funding was capitalized and is being amortized using the effective interest method over
the repayment period. The Company made weekly cash payments of $8,683, totaling $43,413 and the balance outstanding at September 30,
2025 was $323,654, net of debt discount of $84,433.

ETHEMA HEALTH CORPORATION

NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

15. | Government assistance loans

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

On September
21, 2022, ARIA received partial forgiveness of the government assistance loan of $104,368, the balance of the loan plus accrued interest
is due and payable. The maturity date of PPP loans was changed to five years from issuance on June 5, 2020 by the federal government.
The maturity date of the loan is May 3, 2026, which is in line with the repayment schedule on the loan. On December 30, 2022, the Company
sold ARIA to its Chairman and CEO and agreed to assume the repayment of the government assistance loan. As of September 30, 2025, the
balance outstanding, including interest thereon was $21,395.

16. | Related parties

Related party balances consist
of the following:

September 30, | December 31,
2025 | 2024
Advance from related party
Eileen Greene
Principal opening balance | $ | 273,461 | $ | —
Principal advance made | — | 285,000
Repayments | — | ( 11,539 | )
273,461 | 273,461
Debt discount opening balance | ( 8,495 | ) | —
Debt discount at inception | — | ( 35,000 | )
Amortization of debt discount | 8,495 | 26,505
— | ( 8,495 | )
Total Related party advance | $ | 273,461 | $ | 264,966
Related party payables
Shawn E. Leon | $ | 30,795 | $ | 144,353
Eileen Greene | 552,556 | 488,965
ERC Investments, LLC | 904,580 | —
New Journey, LLC | 58,656 | —
JDE Properties, LLC | 55,825 | —
Viking Assets, LLC | 7,800 | —
Charity operation | 29,800 | —
Total related party payables | $ | 1,640,012 | $ | 633,318
Note payable – related parties
Loan advanced by ERC Investments, LLC | $ | 33,767 | $ | —
Accrued interest | 1,857 | —
$ | 35,624 | $ | —
Loan advanced by New Journey, LLC | $ | 47,974 | $ | —
Accrued interest | 2,419 | —
$ | 50,393 | $ | —
Total notes payable – Related party | $ | 86,017 | $ | —

Related
party advance – Eileen Greene

On
July 4, 2024, Ms. Greene advanced the Company $250,000 with an original issue discount of $35,000, totaling $285,000. The amount was
being repaid in instalments of $5,769, however the Company paused repayment of this advance until the Company has the cash flow to make
future payments. The advance is not expected to be repaid during the current financial year.

At
September 30, 2025 and December 31, 2024, the Company owed Eileen Greene, the spouse of its CEO, Shawn Leon, related party advances of
$273,461 and $264,966, net of unamortized discount, respectively.

ETHEMA HEALTH CORPORATION

NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

16. | Related parties (continued)

Related
party payables

Shawn E. Leon

During
July 2024, the related party payable of $1,092,701 owing to Leon Developments and $500,000 of the related party payable to
Eileen Greene was assigned by the respective parties to Mr. Leon.

On
July 12, 2024, Mr. Leon converted $1,500,000 of the related party payable into 3,000,000,000 shares of common stock at a conversion price
of $0.0005 per share.

On
September 27, 2024, Mr. Leon converted $6,000 of the related party payable into 600,000 shares of Series A Preferred stock at a conversion
price of $0.01 per share.

During
September 30, 2025, $120,000 of the related party payable to Eileen Greene was assigned to Mr. Leon.

During
the nine months ended September 30, 2025, Mr. Leon earned management fees of $180,000 and for the year ended December 31, 2024, Mr. forfeited
management fees due to him.

At
September 30, 2025 and December 31, 2024, the Company had a payable to Shawn Leon of $30,795 and $144,353, respectively. Mr. Leon is
a director and CEO of the Company. The balances owing to Mr. Leon are repayable on demand and the repayment date is uncertain.

Eileen
Greene

During
July 2024, Ms. Greene assigned $500,000 of the Related party payable to her to Mr. Leon.

On
July 12, 2024, Ms. Greene converted $500,000 of the related party payable into 1,000,000,000 shares of common stock at a conversion price
of $0.0005 per share.

During
September 30, 2025, Ms. Greene assigned $120,000 of the related party payable to Mr. Leon.

The
amounts owing to Ms. Greene are repayable on demand and the repayment date is uncertain.

At
September 30, 2025 and December 31, 2024, the Company owed Eileen Greene, the spouse of its CEO, Shawn Leon, related party payables of
$552,556 and $488,965, respectively.

ERC
Investments, LLC

As
disclosed in note 4 above, a liability owed to ERC Investments, LLC from Edgewater was assumed by the Company, the aggregate liability
assumed by the Company on January 9, 2025 was $783,679.

The
Company pays rent of $76,000 per month to ERC for three properties located in Morehead Kentucky.

At
September 30, 2025, the balance owing to ERC was $904,580.

New
Journey, LLC

As
disclosed in note 4 above, a liability owed to New Journey, LLC from Edgewater was assumed by the Company, the aggregate liability assumed
by the Company on January 9, 2025 was $46,615.

The
Company pays rent of $5,500 per month to New Journey for two properties located in Morehead Kentucky.

At
September 30, 2025, the balance owing to New Journey was $58,656.

JDE
Properties, LLC

As
disclosed in note 4 above, a liability owed to JDE from Edgewater was assumed by the Company, the aggregate liability assumed by the
Company on January 9, 2025 was $37,525.

The
Company pays rent of $5,000 per month to JDE for two properties located in Morehead Kentucky.

At
September 30, 2025, the balance owing to JDE was $55,825.

Viking
Assets, LLC

Viking
Assets is owned by BH Properties, LLC and currently owns three properties, two of which are located in Paducah, Kentucky and a third
in Morehead, Kentucky.

The
Company pays rent of $14,000 per month to Viking Assets for two properties located in Paducah, Kentucky.

At
September 30, 2025, the balance owing to Viking Assets was $7,800.

Charity

A
charity controlled and managed by Shawn Leon advanced the Company $31,000 during the nine months ended September 30, 2025, of which $1,200
has been repaid. The amount owing to the charity is repayable on demand and the repayment date is uncertain.

ETHEMA HEALTH CORPORATION

NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

16. | Related parties (continued)

Note
payable – Related party

ERC
Investments, LLC

BH Properties,
through its subsidiaries, ERCI, NJ and JDE, secured funding of $2,300,000 to settle certain obligations in those subsidiaries as well
as obligations related to the acquisition of the assets of Edgewater by Aria Kentucky. The obligations related to the acquisition of
the assets of Edgewater amounted to $33,767 and bears interest at 7.5% per annum calculated on a 360 day year and is secured by the properties
owned by BH Properties and its subsidiaries.

At September
30, 2025, the balance owing to ERCI was $35,624.

New
Journey Investments, LLC

BH Properties,
through its subsidiaries, ERCI, NJ and JDE, secured funding of $500,000 to settle obligations related to the acquisition of certain properties
into NJ and certain assets of Edgewater by Aria Kentucky. The obligations related to the acquisition of the assets of Edgewater amounted
to $47,974 and bears interest at 6.875% per annum calculated on a 360 day year and is secured by the properties owned by BH Properties
and its subsidiaries.

At September
30, 2025, the balance owing to NJ was $50,393.

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

17 . | Stockholders’
deficit
a . | Common shares

Authorized
and outstanding

The
Company has authorized 10,000,000,000 shares with a par value of $0.01 per share. The Company has issued 7,726,283,805
and 7,729,053,805 shares of common stock at September 30, 2025 and December 31, 2024, respectively.

On July 12, 2024, the Company issued 4,000,000,000 shares of common stock to Mr. Shawn Leon, the Company CEO and his spouse, Ms. Eileen
Greene, both related parties, for the conversion of $2,000,000 of related party payables, see note 16 above.

On
November 17, 2024, the Company entered into a subscription agreement with a party related to Shawn Leon, whereby 165,000,000 shares of
common stock were subscribed for at $0.0012 per share, for gross proceeds of $198,000. These shares have not been issued yet and the
proceeds of $198,000 is recorded as a Share subscription liability until such time as the common shares are issued.

On
February 18, 2025, the Company cancelled 2,770,000 shares which were acquired by Mr. Leon, the Company’s CEO from several individuals.
Mr. Leon cancelled these shares.

b. | Series
A Preferred shares

Authorized,
issued and outstanding

The
Company has authorized 10,000,000 Series A preferred shares with a par value of $0.01 per share. The Company has
issued and outstanding 4,765,000 Series A Preferred shares at September 30, 2025 and December 31, 2024.

On
September 27, 2024, the Company issued 600,000 shares of Series A Preferred stock to Mr. Shawn Leon for the conversion of $6,000 of related
party payables, see note 16 above.

On
November 17, 2024, 165,000 shares of Series A Preferred stock was sold to a relative of Mr. Leon for gross proceeds of $1,650.

ETHEMA HEALTH CORPORATION

NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

17. | Stockholders’
deficit (continued)
c. | Stock
options

Our
board of directors adopted the Greenstone Healthcare Corporation 2013 Stock Option Plan (the “Plan”) to promote our long-term
growth and profitability by (i) providing our key directors, officers and employees with incentives to improve stockholder value and
contribute to our growth and financial success and (ii) enable us to attract, retain and reward the best available persons for positions
of substantial responsibility. A total of 10,000,000 shares of our common stock have been reserved for issuance upon exercise
of options granted pursuant to the Plan. The Plan allows us to grant options to our employees, officers and directors and those of our
subsidiaries, provided that only our employees and those of our subsidiaries may receive incentive stock options under the Plan. We have
no issued options at September 30, 2025 and December 31, 2024 under the Plan.

d. | Warrants

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

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

A summary of the Company’s
warrant activity during the period from January 1, 2024 to September 30, 2025 is as follows:

No.
of shares | Exercise
price per share | Weighted average exercise price
Outstanding
as of January 1, 2024 | 1,022,376,420 | $ 0.001 to
$ 0.00205 | $ | 0.001284
Granted | – | – | –
Forfeited/cancelled | – | – | –
Exercised | – | – | –
Outstanding
as of December 31, 2024 | 1,022,376,420 | $ 0.001 to $ 0.00205 | $ | 0.001284
Granted | – | – | –
Forfeited/cancelled | – | – | –
Exercised | – | – | –
Outstanding
as of September 30, 2025 | 1,022,376,420 | $ 0.001 to
$ 0.00205 | $ | 0.001284

The
following table summarizes information about warrants outstanding at September 30, 2025:

Warrants outstanding | Warrants exercisable
Exercise price | No. of shares | Weighted average remaining years | Weighted average exercise price | No. of shares | Weighted average exercise price
$0.001000 | 745,810,761 | 1.75 | $ | 0.001000 | 745,810,761 | $ | 0.001000
$0.002050 | 276,565,659 | 0.26 | 0.002050 | 276,565,659 | 0.002050
1,022,376,420 | 1.35 | $ | 0.001284 | 1,022,376,420 | $ | 0.001284

All
of the warrants outstanding at September 30, 2025 are vested. The warrants outstanding at September 30, 2025 have an intrinsic value
of $0.

ETHEMA HEALTH CORPORATION

NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

18. | Segment
information

The
Company provides rehabilitation services to customers in the U.S. These services are provided to customers at its Evernia, Addiction
Recovery Institute of America facility located in Florida and its Addiction Recovery Institute of America, located in Kentucky. These
facilities are regarded as one reporting segment.

The
Company’s CODM reviews financial information presented and decides how to allocate resources based on net operating income (loss).
Net income (loss) is used for evaluating financial performance.

Significant
segment expenses include Salaries and wages, rent expense, professional fees, management fees, food expenses, marketing and advertising
expenses, insurance expenses and depreciation and amortization expenses. Other operating expenses include all remaining costs necessary
to operate our business, which primarily include other administrative expenses. The following table presents the significant segment
expenses and other segment items regularly reviewed by our CODM.

The
segment operating results of the one reportable segment for the three and nine months ended September 30, 2025 is disclosed as follows:

Detox and rehab Services
Three months ended September 30, 2025 | Three months ended September 30, 2024 | Nine months ended September 30, 2025 | Nine months ended September 30, 2024
Revenues | $ | 5,529,402 | $ | 1,760,000 | $ | 13,952,597 | $ | 4,550,200
Salaries and wages | 2,524,179 | 839,015 | 6,830,699 | 2,279,788
Rent expense | 780,532 | 392,772 | 2,287,447 | 932,035
Professional fees | 359,384 | 231,312 | 1,135,197 | 686,994
Client related expenses | 403,402 | 131,453 | 1,052,312 | 347,727
Marketing and advertising expenses | 162,501 | 133,826 | 402,009 | 247,013
Insurance expenses | 114,888 | 33,260 | 346,094 | 110,200
Property expenses | 233,181 | 43,538 | 683,925 | 175,073
Management fees | 60,000 | 480,000 | 180,000 | 480,000
Other operating expenses | 139,124 | 75,811 | 321,151 | 175,650
Depreciation and amortization | 206,196 | 122,721 | 605,682 | 346,013
Total operating expenses | 4,983,387 | 2,483,708 | 13,844,516 | 5,780,493
Operating income (loss) | 546,015 | ( 723,708 | ) | 108,081 | ( 1,230,293 | )
Other Income (expense)
Other income | 15 | 40,000 | 172,346 | 40,000
Other expense | — | ( 971 | ) | — | ( 971 | )
Interest income | 2,006 | 766 | 3,691 | 1,864
Interest expense | ( 348,098 | ) | ( 167,575 | ) | ( 965,801 | ) | ( 367,675 | )
Amortization of debt discount | ( 158,064 | ) | ( 141,205 | ) | ( 448,034 | ) | ( 279,607 | )
Foreign exchange movements | 10,828 | ( 8,021 | ) | ( 23,983 | ) | ( 3,510 | )
Net income (loss) before income taxes | $ | 52,702 | $ | ( 1,000,714 | ) | $ | ( 1,153,700 | ) | $ | ( 1,840,192 | )
19. | Net income
(loss) per common share

For
the three and nine months ended September 30, 2025 and 2024, the following warrants exercisable for shares and convertible securities
convertible into a number of shares were excluded from the computation of diluted net loss per share as the results would have been anti-dilutive.

Three and Nine months ended September 30, 2025 | Three and Nine months ended September 30, 2024
Shares issuable upon exercise of warrants | 1,022,376,420 | 1,022,376,420
Shares issuable on conversion of convertible notes | 127,728,250 | 177,521,610
1,150,104,670 | 1,199,898,030
31

ETHEMA HEALTH CORPORATION

NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

20. | Commitments
and contingencies
a . | Options
granted to purchase shares in ATHI

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

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

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

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

b . | Other

The Company
has principal and interest payment commitments under the Convertible notes disclosed under Note 11 above. Conversion of these notes are
at the option of the investor, if not converted these notes may need to be repaid.

From time
to time, the Company and its subsidiaries enter into legal disputes in the ordinary course of business. The Company believes there are
no material legal or administrative matters pending that are likely to have, individually or in the aggregate, a material adverse effect
on its business or results of operations.

ETHEMA HEALTH CORPORATION

NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

21. | Subsequent
events

Funding
arrangements

September
30, 2025 funding

On September
30, 2025, the Company, through its subsidiary, Aria KY entered into a funding arrangement with Itria, whereby it received $247,000, net
of discount and fees of $65,500. The Company is obliged to pay $6,010 per week until the amount of $312,500 is paid in full.
The maturity date of this funding is September 30, 2026. The proceeds of this funding was received on October 2, 2025.

Letter
of intent to acquire certain assets and legal entities

On October 20, 2025, the Company entered
into an exclusive letter of intent (“LOI”) with Addiction Recovery Care LLC (“Vendor”) to purchase certain of
the assets and separate entities operating under the ARC brand name in Kentucky, expiring 90 days from signature thereof. On November
18, 2025, we entered into an amendment to the LOI removing the exclusivity clause, with all other terms remaining the same. The potential
assets to be purchased are of the ARC in-patient facilities in Kentucky operating in Inez, Pikeville, Owensboro and Ashland, along with
out-patient facilities in Kentucky operating in Prestonsburg, Mount Sterling, Louisa, Ashland and Lexington. The potential separate
entities to be purchased include a Psychiatric Hospital, a Pharmacy, a Medical Laboratory and a Rural Health Clinic. The addiction treatment
and psychiatric facilities have a capacity of approximately 900 patients. There are likely to be related real estate transactions involved
in the acquisitions which will remain outside of the Company but could be utilized to generate substantial new equity for the Company.

The proposed
funding of the purchase price will be approximately 25% in cash, 25% in a vendor note and 50% in equity linked funding from the vendor.
The cash portion will be raised by issuance of new equity and the proceeds from sale and subsequent leasing of certain of the ARC facilities.

The Company
intends on creating a new entity (“NewcoARIA”) to acquire the ARC assets and separate entities and will ultimately also hold
the Company’s existing Florida and Kentucky treatment entities. NewcoARIA will be initially owned by Ethema, new investors and
the Vendor. It is likely that the Company will pursue an Initial Public Offering of NewcoARIA on a senior U.S. exchange.

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

Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations.

Statements
contained in this management discussion and analysis of financial condition and results of operations, including but not limited to,
statements regarding the sufficiency of our cash, our ability to finance our operations and business initiatives and obtain
funding for such activities; our future results of operations and financial position, business strategy and plan prospects, or costs
and objectives of management for future acquisitions, are forward looking statements. These forward-looking statements relate to our
future plans, objectives, expectations and intentions and may be identified by words such as “may,” “will,”
“should,” “expects,” “plans,” “anticipates,” “intends,” “targets,”
“projects,” “contemplates,” “believes,” “seeks,” “goals,” “estimates,”
“predicts,” “potential” and “continue” or similar words. Readers are cautioned that these
forward-looking statements are based on our current beliefs, expectations and assumptions and are subject to risks, uncertainties,
and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed, projected
or implied in any forward-looking statements. We undertake no obligation to revise or update any forward-looking
statements for any reason.

P1an
of Operation

During
the next twelve months, the Company plans to continue to grow the Rehabilitation and detox business organically or through acquisitions,
should any opportunities present themselves.

Acquisition
of Edgewater Recovery Centers, LLC

On
October 22, 2024, we, through a wholly owned subsidiary, Aria Kentucky, entered into an asset purchase agreement to acquire the business
of Edgewater Recovery Centers, LLC (“ERC”) from ERC and John Elam (the ”Seller”), located in Morehead and Paducah,
Kentucky through a purchase of the assets of ERC, including but not limited to all current assets existing at the time of closing, all
cash balances and rights to receive cash, all equipment, machinery, all warranties related to the business and acquired assets, all intangible
personal property, intellectual property, all business inventories, all property leases associated with the business, all assumed contracts,
all governmental authorizations; and all information and records, including patient records, as defined in the APA. Certain of the real
prop associated with the operations of is fully leveraged and requires credit and personal guarantees which the Company is unable to
provide. The entities owning the real property were acquired in a separate transaction by BH Properties, a company controlled by Mr.
Shawn Leon, the Company’s CEO and therefore a related party. BH Properties through its acquired subsidiaries then entered into
lease agreements with ARIA Kentucky on an arms-length basis, at market related rates.

On
January 9, 2025, we consummated the Acquisition of the Acquired Assets of ERC. Pursuant to the terms of the APA, at closing ARIA Kentucky
paid the Seller $250,000 and assumed certain liabilities related to the Acquired Assets, including trade payables and liabilities
under assumed contracts and certain specifically identified liabilities, including a settlement agreement with the United States government
and the State of Kentucky and certain obligations as a borrower or guarantor related to banking obligations.

The
results of ARIA Kentucky have been included in our unaudited condensed consolidated financial statements effective January 9, 2025.

Critical
accounting policies and estimates

The
significant accounting policies and estimates of the Company were described in Note 2 to the Audited Consolidated Financial Statements
included in the Company’s Form 10-K for the fiscal year ended December 31, 2024. There have been no material changes to our
critical accounting policies and estimates from the information provided in Note 2 and Item 7. “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” included in our 2024 Form 10-K. The most recently adopted
accounting pronouncements and accounting pronouncements to be adopted by the Company are described in Note 2 in the Notes to our Condensed
Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Results of
operations for the three months ended September 30, 2025 and 2024.

Revenues

Revenues
were $5,529,402 and $1,760,000 for the three months ended September 30, 2025 and 2024, respectively, an increase of $3,769,402 or 214.2%.
Revenues include $3,032,945 from the acquisition of the business of ERC. Revenue from existing business was $2,496,457 and $1,760,000
for the three months ended September 30, 2025 and 2024, respectively, an increase of $736,457 or 41.8%. The increase is primarily due
to the increase in patient count at the West Palm Beach facility and the acquisition of the Boca Raton rehab and detox facility during
June 2024, which commenced revenue generating operations in January 2025, after obtaining all necessary regulatory approvals.

Operating
Expenses

Operating
expenses were $4,983,387 and $2,483,708 for the three months ended September 30, 2025 and 2024, respectively, an increase of $2,499,679
or 100.6%. Operating expenses include $2,685,154 from the acquisition of the business of ERC. Operating expenses from existing operations
was $2,298,233 and $2,483,708 for the three months ended September 30, 2025 and 2024, respectively, a decrease of $185,475 or 7.5%. The
decrease is primarily due to the following:

● | General and
administrative expenses was $1,053,096 and $417,888 for the three months ended September 30, 2025 and 2024, respectively, an increase
of $635,208 or 152.0%. General and administrative expenses include $543,696 from the acquisition of the business of ERC. General
and administrative expenses from existing operations was $509,400 and $417,888 for the three months ended September 30, 2025 and
2024, respectively, an increase of $91,512 or 21.9%. The increase is primarily due to; (i) an increase in client costs related to
an increased patient count and the additional client costs incurred in the Boca Cove facility; An increase in property expenses,
including the Boca Cove facility for the nine months during the current period and an increase in insurance costs, with the additional
location at Boca Cove now insured.
● | Salaries and
wages were $2,524,179 and $839,015 for the three months ended September 30, 2025 and 2024, respectively, an increase of $1,685,164
or 200.9%. Salaries and wages includes $1,503,596 from the acquisition of the business of ERC. Salaries and wages from existing operations
was $1,020,583 and $839,015 for the three months ended September 30, 2025 and 2024, respectively, an increase of $181,568 or 21.6%
The increase is due to the acquisition of the Boca Raton facility which was fully staffed up and operational beginning January 2025.
● | Rent expense
was $780,532 and $392,772 for the three months ended September 30, 2025 and 2024, respectively, an increase of $387,760 or 98.7%.
Rent expense includes $403,951 from the acquisition of the business of ERC. Rental expense from existing operations was $376,581
and $392,772 for the three months ended September 30, 2025 and 2024, respectively, a decrease of $16,191 or 4.1%. In the prior year
an additional rental accrual of $51,853 was made related to a shortfall in the rental expense for the Boca Cove detox facility.
● | Professional
fees were $359,384 and $231,312 for the three months ended September 30, 2025 and 2024, respectively, an increase of $128,072 or
55.4%. Professional fees includes $152,209 from the acquisition of the business of ERC. Professional fees from existing operations
was $207,175 and $231,312 for the three months ended September 30, 2025 and 2024, respectively, a decrease of $24,137 or 10.4%. The
decrease is primarily due to the professional fees incurred in the prior year on the acquisition of the non-controlling shareholders
interest and the assets of the Boca Cove detox center.
● | Management
fees were $60,000 and $480,000 for the three months ended September 30, 2025 and 2024, respectively, a decrease of $420,000 or 87.5%.
In the prior year an accrual was made for management fees to our CEO, but were subsequently reversed as these were not approved prior
to year end.
● | Depreciation
and amortization expense was $206,196 and $122,721 for the three months ended September 30, 2025 and 2024, respectively, an increase
of $83,475 or 68.0%. Depreciation and amortization includes depreciation and amortization from the acquisition of the business of
ERC amounting to $81,702. Depreciation and amortization expense from existing operations was $124,494 and $122,721 for the three
months ended September 30, 2025 and 2024, respectively, an increase of $1,773 or 1.4%. The increase is primarily due to minor asset
additions during the current period.

Operating
income (loss)

Operating
income was $546,015 and operating loss was $(723,708) for the three months ended September 30, 2025 and 2024, respectively, an increase
of $1,269,723 or 175.4%. The increase is due to the increase in revenue, primarily due to the acquisition of ERC and the increased revenue
in our Florida locations, offset by an increase in operating expenses, as discussed in detail above.

Other
income

Other
income was $15 and $40,000 for the three months ended September 30, 2025 and 2024, respectively, a decrease of $39,985 or 99.9%. In the
prior year, other income represented management fees earned from managing the entity prior to acquisition.

Other
expense

Other
expense was $0 and $971 the three months ended September 30, 2025 and 2024, respectively.

Interest
income

Interest
income was $2,006 and $766 for the three months ended September 30, 2025 and 2024, an increase of $1,240 or 161.9%. The interest income
is interest earned on positive cash balances during the current period.

Interest
expense

Interest
expense was $348,098 and $167,575 for the three months ended September 30, 2025 and 2024, respectively, an increase of $180,523 or 107.7%.
Included in interest expense is interest of $108,267 related to the acquisition of the business of ERC. Interest expense on the existing
business was $239,831 and $167,575 for the three months ended September 30, 2025 and 2024, respectively, an increase of $72,256, primarily
due to an increase in interest expense related to default interest on letter of credit funding, additional interest on Series R promissory
notes which were entered into during the period March to May 2024, and interest on promissory notes issued to acquire the assets of the
Boca Raton facility and the non-controlling shareholders interest in the prior year.

Amortization
of debt discount

Amortization
of debt discount was $158,064 and $141,205 for the three months ended September 30, 2025 and 2024, respectively, an increase of $16,859
or 11.9%. Included in amortization of debt discount is amortization of $57,301 related to funding arrangements in Aria Kentucky. Amortization
of debt discount in the existing business was $100,763 and $141,205, a decrease of $40,442 or 28.6%. The amortization of debt discount
relates primarily to short-term funding arrangements. The decrease is due to the timing of amortization of debt discount on funding arrangements,
including funding from Fortunate and Sons and Funding arrangements from related parties, which have not been repaid as yet.

Foreign
exchange movements

Foreign
exchange movements were $10,828 and $(8,021) for the three months ended September 30, 2025 and 2024, respectively, representing the realized
exchange gains and (losses) on monetary assets and liabilities settled during the current year as well as mark to market adjustments
on monetary assets and liabilities reflected on the balance sheet and denominated in Canadian Dollars. The Dollar strengthened against
the Canadian Dollar during the current period, resulting in an unrealized gain on Canadian denominated assets.

Net
income (loss) before income taxes

Net
income before income taxes was $52,702 and net loss before income taxes was $(1,000,714) for the three months ended September 30, 2025
and 2024, respectively, an increase of $1,053,416 or 105.3%. The increase is primarily due to the increase in operating income discussed
above offset by the increase in interest expense and amortization of debt discount.

Income
taxes

Income
taxes was a credit of $13,434 and $0 for the three months ended September 30, 2025 and 2024, respectively, an increase of $13,434 or
100.0%. Income taxes represents the deferred tax movement on the value of certain identifiable intangibles acquired from Edgewater.

Net
income (loss)

Net
income was $66,136 and net loss was $(1,000,714) for the three months ended September 30, 2025 and 2024, respectively, an increase of
$1,066,850 or 106.6%. The increase was primarily due to the increase in net income before income taxes and the movement in income taxes
as discussed above.

Results of operations for the nine
months ended September 30, 2025 and September 30, 2024.

Revenues

Revenues
were $13,952,597 and $4,550,200 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $9,402,397 or 206.6%.
Revenues include $7,835,447 from the acquisition of the business of ERC. Revenue from existing business was $6,117,150 and $4,550,200
for the nine months ended September 30, 2025 and 2024, respectively, an increase of $1,566,950 or 34.4%. The increase is primarily due
to the increase in patient count at the West Palm Beach facility and the acquisition of the Boca Raton rehab and detox facility during
June 2024, which commenced revenue generating operations in January 2025, after obtaining all necessary regulatory approvals.

Operating
Expenses

Operating
expenses were $13,844,516 and $5,780,493 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $8,064,023
or 139.5%. Operating expenses include $7,343,423 from the acquisition of the business of ERC. Operating expenses from existing operations
was $6,501,093 and $5,780,493 for the nine months ended
September 30, 2025 and 2024, respectively, an increase of $720,600 or 12.5%. The increase is primarily due to the following:

● | General and
administrative expenses was $2,805,491 and $1,055,663 for the nine months ended September 30, 2025 and 2024, respectively, an increase
of $1,749,828 or 165.7%. General and administrative expenses include $1,463,373 from the acquisition of the business of ERC. General
and administrative expenses from existing operations was $1,342,118 and $1,055,663 for the nine months ended September 30, 2025 and
2024, respectively, an increase of $286,455 or 27.1%. The increase is primarily due to an increase in client costs related to an
increased patient count and the additional client costs incurred in the Boca Cove facility, an increase in advertising and promotional
activity to attract customers to our facilities and an increase in property expenses, which includes property taxes at the Boca cove
facility for the full nine month. Period compared to five months from the prior period.
36
● | Salaries and
wages were $6,830,699 and $2,279,788 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $4,550,911
or 199.6%. Salaries and wages includes $4,022,450 from the acquisition of the business of ERC. Salaries and wages from existing operations
was $2,808,249 and $2,279,788 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $528,461 or 23.2%
The increase is due to the acquisition of the Boca Raton facility which was fully staffed up and operational beginning January 2025.
● | Rent expense
was $2,287,447 and $932,035 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $1,355,412 or 145.4%.
Rent expense includes $1,147,133 from the acquisition of the business of ERC. Rental expense from existing operations was $1,140,314
and $932,035 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $208,279 or 22.3%. The increase
is primarily due to the additional rent incurred at the Boca Cove detox facility of $187,138 which was acquired in June 2024 and
additional rental costs for an apartment in west Palm Beach during the current period.
● | Professional
fees were $1,135,197 and $686,994 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $448,203 or
65.2%. Professional fees includes $475,136 from the acquisition of the business of ERC. Professional fees from existing operations
was $660,061 and $686,994 for the nine months ended September 30, 2025 and 2024, respectively, a decrease of $26,933 or 3.9%. Professional
fees include fees incurred for the acquisition of the Edgewater facility and in the prior period due to the acquisition of the non-controlling
shareholders interest and the assets of the Boca Cove detox center.
● | Management
fees were $180,000 and $480,000 for the nine months ended September 30, 2025 and 2024, respectively, a decrease of $300,000 or 62.5%.
Management fees accrued in the prior year of $480,000 were reversed in the fourth quarter as these were not timely approved. In the
current year the historical management fee of $20,000 per month which had been forfeited in previous years, due to the performance
of the group, was accrued for our CEO in the current year.
● | Depreciation
and amortization expense was $605,682 and $346,013 for the nine months ended September 30, 2025 and 2024, respectively, an increase
of $259,669 or 75.0%. Depreciation and amortization includes depreciation and amortization from the acquisition of the business of
ERC amounting to $235,331. Depreciation and amortization expense from existing operations was $370,351 and $346,013 for the nine
months ended September 30, 2025 and 2024, respectively, an increase of $24,338 or 7.0%. The increase is primarily due to additional
deprecation incurred on assets acquired with the Boca Raton facility in June 2024.

Operating
income (loss)

The
operating income was $108,081 and the operating loss was $(1,230,293) for the nine months ended September 30, 2025 and 2024, respectively,
an increase of $1,338,374 or 108.8%. The increase is due to the increase in revenue, primarily due to the acquisition of ERC and the
increased revenue in our Florida locations, offset by an increase in operating expenses, as discussed in detail above.

Other
income

Other
income was $172,346 and $40,000 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $132,346 or 330.9%.
The increase in other income was primarily related to management fees earned from Edgewater Recovery based on business profitability
during the management period, an employee retention credit received from the federal government, and bank refund to Aria Kentucky related
to the Edgewater acquisition. In the prior year, other income represented management fees earned from managing the entity prior to acquisition.

Other
expense

Other
expense was $0 and $971 the nine months ended September 30, 2025 and 2024, respectively.

Interest
income

Interest
income was $3,691 and $1,864 for the nine months ended September 30, 2025 and 2024, an increase of $1,827 or 98.0%. The interest income
is interest earned on positive cash balances during the current period.

Interest
expense

Interest
expense was $965,801 and $367,675 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $598,126 or 162.7%.
Included in interest expense is interest of $301,826 related to the acquisition of the business of ERC. Interest expense on the existing
business was $663,975 and $367,675 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $296,300 or 80.6%,
primarily due to an increase in interest expense related to default interest on letter of credit funding, additional interest on Series
R promissory notes which were entered into during the period March to May 2024, and interest on promissory notes issued to acquire the
assets of the Boca Raton facility and the non-controlling shareholders interest in the prior year.

Amortization
of debt discount

Amortization
of debt discount was $448,034 and $279,607 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $168,427
or 60.2%. Included in amortization of debt discount is amortization of $105,824 related to funding arrangements in Aria Kentucky. Amortization
of debt discount in the existing business was $342,210 and $279,607, an increase of $62,603 or 22.4%. The amortization of debt discount
relates primarily to short-term funding arrangements. In the current period the Company increased its funding arrangements to fund working
capital requirements in both the Aria Kentucky operation and our Florida operations.

Foreign
exchange movements

Foreign
exchange movements were $(23,983) and $(3,510) for the nine months ended September 30, 2025 and 2024, respectively, representing the
realized exchange gains and (losses) on monetary assets and liabilities settled during the current year as well as mark to market adjustments
on monetary assets and liabilities reflected on the balance sheet and denominated in Canadian Dollars. The Dollar weakened against the
Canadian Dollar during the current nine month period, resulting in an unrealized loss on Canadian denominated assets.

Net
loss before income taxes

Net
loss before income taxes was $1,153,700 and $1,840,192 for the nine months ended September 30, 2025 and 2024, respectively, a decrease
of $686,492 or 37.3%. The decrease is primarily due to the increased revenue and other income, offset by an increase in operating expenses,
interest expense and amortization of debt discount, all discussed in detail above.

Income
Taxes

Income
taxes was a credit of $39,210 and $0 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $39,210 or 100.0%.
The taxation charge represents the deferred tax movement on the value of certain identifiable intangibles acquired from Edgewater.

Net
loss

Net
loss was $1,114,490 and $1,840,192 for the nine months ended September 30, 2025 and 2024, respectively, a decrease of $725,702 or 39.4%.
The decrease was primarily due to the decrease in net loss before income taxes and the movement in income taxes, as discussed above.

Commitments
and contingencies

The
Company has commitments under operating and finance leases as follows:

Finance
lease liability

The amount of
future minimum lease payments under finance leases at September 30, 2025 is as follows:

Amount
Remainder of 2025 | $ | 2,457
2026 | 6,195
2027 | 1,707
Total undiscounted minimum future lease payments | $ | 10,359

Operating
lease liability

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

The
Company also has commitments under convertible loans and short-term loans. If the convertible loans, as disclosed in note 11, above are
not converted they will need to be repaid.

Liquidity
and Capital Resources

Cash
used in operating activities was $339,135 and $377,954 for the nine months ended September 30, 2025 and 2024, respectively, a decrease
of $38,819. Cash used in operating activities from the acquisition of the business of ERC was $182,327. The cash used in operating activities
from the existing business was $156,808 and $377,954 for the nine months ended September 30, 2025 and 2024, respectively, a decrease
of $221,146.

The
decrease is primarily due to the following:

● | A decrease
in net loss of $725,702, as discussed under results of operations above.
● | Offset by an
increase in the movement of non-cash items of $654,139, primarily due to the increase in the movement of right of use asset of $642,241,
the increase in the movement of depreciation and amortization of $259,669 the increase in the movement of amortization of debt discount
of $168,427 and the increase in the movement of provision for credit losses of $103,012.
● | Working capital
movements decreased by $(1,341,022) primarily due to an increase in the movement in the investment in accounts receivable of $(1,553,776), a
movement in the operating lease liabilities of $(592,473), offset by the movement in accounts payable and accrued liabilities of
$607,867 and the movement in related party accruals of $162,990.

Cash
used in investing activities was $134,655 and $1,033,915 for the nine months ended September 30, 2025 and 2024, respectively. In the
current period, we acquired the business of ERC for gross proceeds of $250,000 net of cash on acquisition of $299,492, resulting in a
net cash generated on acquisition of $49,492. In the current period we invested in property and equipment of $158,716 and deposits related
to properties leased from third parties and certain new utility deposits of $25,431. In the prior period we paid $625,000 for the acquisition
of the minority interest in ATHI, a further $240,000 for the acquisition of the assets of Boca Cove Detox and a further $83,393 for the
assumption of the real property deposit on the Boca Cove facility. Property and equipment purchased during the prior period was $85,522.

Cash
provided by financing activities was $330,141 and $1,415,265 for the nine months ended September 30, 2025 and 2024. During the current
period, we raised $1,902,375 from funding arrangements and repaid $1,720,249, a net movement of $182,126, we received an additional bank
loan of $300,000 and $310,000 from the issuance of two promissory notes to investors and a short term advance of $70,000, additionally
we repaid $173,377 of short term notes. We repaid assumed liabilities of $159,085, promissory notes of $110,000, and received proceeds
from related parties of $31,000 and repaid $1,200 during the current period. In the prior period the Company received $1,912,000
and repaid $(801,323) of short-term notes and received $542,000 and repaid $378,688 from funding arrangements, we repaid $40,000 of promissory
notes, and in addition we received an advance of $250,000 from related parties and repaid $11,538.

Over
the next twelve months we estimate that the Company will require approximately $1.5 million in working capital as it continues to develop
its Florida and Kentucky operations. We are also exploring several other treatment center options and sources of patients throughout
the country. The Company may have to raise equity or secure debt. There is no assurance that the Company will be successful with future
financing ventures, and the inability to secure such financing may have a material adverse effect on the Company’s financial
condition.

Going
Concern

Our
unaudited condensed consolidated financial statements have been prepared in accordance with US GAAP applicable to a going concern, which
assumes that we will be able to meet our obligations and continue our operations in the normal course of business. At September 30, 2025,
we had a working capital deficiency of $12.2 million, and total liabilities in excess of assets in the amount of $8.6 million.
We believe that current available resources will not be sufficient to fund our planned expenditures over the next 12 months. Accordingly,
we will be dependent upon the raising of additional capital through placement of common shares, and/or debt financing in order to implement
our business plan and generate sufficient revenue in excess of costs. If we raise additional capital through the issuance of equity securities
or securities convertible into equity, stockholders will experience dilution, and such securities may have
rights, preferences or privileges senior to those of the holders of common stock or convertible senior notes. If we raise additional
funds by issuing debt, we may be subject to limitations on our operations, through debt covenants or other restrictions. If we obtain
additional funds through arrangements with collaborators or strategic partners, we may be required to relinquish our rights to certain
geographical areas, or techniques that it might otherwise seek to retain. There is no assurance that we will be successful with future
financing ventures, and the inability to secure such financing may have a material adverse effect on our financial condition. These unaudited
condensed consolidated financial statements do not include any adjustments to the amounts and classifications of assets and liabilities
that might be necessary should we be unable to continue as a going concern.

Recently
Issued Accounting Pronouncements

The
recent Accounting Pronouncements are fully disclosed in note 2 to our unaudited condensed consolidated financial statements.

Management
does not believe that any other recently issued but not yet effective accounting pronouncements, if adopted, would have an effect on
the accompanying unaudited condensed consolidated financial statements.

Off
balance sheet arrangements

We
do not maintain off-balance sheet arrangements nor do we participate in non-exchange traded contracts requiring fair value accounting
treatment.

Inflation

The
effect of inflation on our revenue and operating results was not significant.

Climate
Change

We
believe that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material
effect on our operations.

Item
3. Quantitative and Qualitative Disclosures about Market Risk.

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

Item
4. Controls and Procedures.

Evaluation
of Disclosure Controls and Procedures

Pursuant to Rule
13a-15(b) under the Exchange Act, our management carried out an evaluation, with the participation of our Chief Executive Officer (“CEO”)
and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures (as defined under Rule
13a-15(e) under the Exchange Act) as of the end of the period covered by this Report. Based upon that evaluation, our CEO and CFO concluded
that our disclosure controls and procedures as of September 30, 2025 are not effective due to a lack of written policies and procedures
to address all material transactions and developments impacting our financial statements.

Changes in Internal Control over Financial
Reporting

There has been no
change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred
during our fiscal quarter ended September 30, 2025. Our management is committed to improving our controls and procedures by, among other
matters, continuing to consider and adopt appropriate policies and procedures to address all material transactions and developments impacting
our financial statements. However, our management does not expect that our disclosure controls and procedures and our internal control
processes, even if improved, will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must
reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues
and instances of error or fraud, if any, within our company have been detected. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that the breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls
may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be
detected. However, these inherent limitations
are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though
not eliminate, this risk.

PART
II

Item 1. Legal
Proceedings.

We
are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results
of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the executive
officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries
or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could
have a material adverse effect.

Item 1A. Risk
Factors.

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

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

Unregistered
sales of equity securities

None.

Use of proceeds
from public offerings of common stock

None.

Item 3. Defaults
upon senior securities

None.

Item 4. Mine
Safety Disclosures.

None.

Item 5. Other
Information.

No t
applicable .

Item 6. Exhibits

Exhibit No. | Description
10.1 | Letter of Intent, dated July 8, 2024, by Ethema Health Corporation and Edgewater Health Centers, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 12, 2024)
10.2 | Securities Purchase Agreement, dated July 12, 2024, by Ethema Health Corporation and Shawn Leon (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed July 12, 2024)
10.3 | Asset Purchase Agreement, dated July 12, 2024, by ARIA Kentucky, LLC, Edgewater Health Centers, LLC and John David Elam (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 29, 2024)
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

SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

ETHEMA
HEALTH CORPORATION

Date:
December 3, 2025

By: /s/
Shawn E. Leon.

Name:
Shawn E. Leon

Title:
Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer)

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