ETHEMA HEALTH Corp - FORM 10-Q

Attached files

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EX-31.1 - EXHIBIT 31.1 - ETHEMA HEALTH Corp	a50376767ex31_1.htm
EX-32.1 - EXHIBIT 32.1 - ETHEMA HEALTH Corp	a50376767ex32_1.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

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

OF 1934

For the Quarterly Period ended June 30, 2012

Commission File number 0-15078

GREENESTONE HEALTHCARE CORPORATION

(Name of Small Business Issuer in its charter)

Colorado

(State or other

jurisdiction of incorporation

Identification No.)

84-1227328

(I.R.S. Employer of

Incorporation

Identification No.)

Suite 300, 5734 Yonge Street,

North York, Ontario, Canada M2M 4E7

(Address of principal executive offices)

(416) 222-5501)

(issuer's phone number)

Securities registered under Section 12(b) of the Act: NONE

Securities registered under Section

12(g) of the Act:

Common Stock, $.01 Par Value

(Title of Class)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12months (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 X No

Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-Q or any amendment to this Form 10-Q. [X]

Issuer's revenues for its most recent fiscal year totaled: $1,678,804 and most recent quarter was $1,348,582

Documents Incorporated by Reference: None

Transitional Small Business Disclosure Format: Yes X No.___

As of June 30, 2012, the Registrant had outstanding no shares of Convertible Preferred Stock, $1.00 par value issued and outstanding. The number of Shares of Common Stock Outstanding $.01 par value as of June 30 2012, was 23,767,535.

GREENESTONE HEALTHCARE CORPORATION

Index to Form 10-Q

PART 1.	FINANCIAL INFORMATION		Page No.

Item 1.		Financial Statements	1

		Consolidated Interim Balance Sheets as of June 30, 2012, June 30, 2011
		and December 31, 2011	2

		Consolidated Interim Statement of Changes in Stockholders' Deficit	3

		Consolidated Interim Statements of Operations for the Three Months
		Periods Ended June 30, 2012 and June 30, 2011, and the Six Month
		Periods Ended June 30, 2012 and June 30, 2011	4

		Consolidated Interim Statements of Cash Flows for the Three Months
		Periods Ended June 30, 2012 and June 30, 2011 and the Six Month
		Periods Ended June 30, 2012 and June 30, 2011	5

		Notes to the Consolidated Interim Financial Statements	6-19

Item 2.		Management Discussion and Analysis	20

Item 3.		Quantitative and Qualitative disclosure about Market Risk	21

Item 4.		Controls and Procedures	21

PART 2.	OTHER INFORMATION

Item 1.		Legal Proceedings	22

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	22

Item 3.		Defaults upon Senior Securities	22

Item 4.		Submission of Matters to a Vote of Security Holders	22

Item 5.		Other Information	22

Item 6.		Exhibits	23

PART 1

GREENESTONE HEALTHCARE CORPORATION

Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2012

(Expressed in U.S. $)

Unaudited

GREENESTONE HEALTHCARE CORPORATION

Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2012

(Expressed in U.S. $)

Unaudited

CONTENTS

	Page
Report of Independent Registered Public Accounting Firm	1

Consolidated Interim Balance Sheets as of June 30, 2012, June 30, 2011 and December 31, 2011	2

Consolidated Interim Statements of Changes in Stockholders’ Deficit	3

Consolidated Interim Statements of Operations for the Three Months Periods Ended June 30, 2012 and June 30, 2011, and the Six Month Periods Ended June 30, 2012 and June 30, 2011	4

Consolidated Interim Statements of Cash Flows for the Three Months Periods Ended June 30, 2012 and June 30, 2011 and the Six Month Periods Ended June 30, 2012 and June 30, 2011	5

Notes to the Consolidated Interim Financial Statements	6 - 19

Report of Independent Registered Public Accounting Firm

To the Shareholders of:

GreeneStone Healthcare Corporation

We have reviewed the accompanying interim Balance Sheet of GreeneStone Healthcare Corporation as of June 30, 2012, and the related interim Statements of Operations, Changes in Stockholders’ Deficit and Statements of Cash Flows for the three month period ended June 30, 2012 and six month period ended June 30, 2012. These interim financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

The comparative June 30, 2011 figures have been reviewed by another independent registered public accounting firm.

“Jarvis Ryan Associates”

Chartered Accountants

Mississauga, Ontario, Canada

July 31, 2012

GREENESTONE HEALTHCARE CORPORATION

Consolidated Interim Balance Sheet

(Expressed in U.S. $)

(Unaudited)

	June 30, 2012				June 30, 2011			December 31, 2011
	(Unaudited)				(Unaudited)
ASSETS
Current assets
Cash		$	112,548		$	290,566		$	-
Accounts receivable (note 6)			311,179			195,141			188,423
Harmonized sales tax receivable			-			-			5,933
Prepaid expenses			95,619			51,840			83,724
Inventory			16,840			11,367			11,784
Total current assets			536,186			548,914			289,864

Fixed assets, net of accumulated depreciation (note 7)			648,701			661,106			641,052

Total assets		$	1,184,887		$	1,210,020		$	930,916

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities
Bank indebtedness		$	-		$	-		$	28,281
Accounts payable and accrued liabilities			635,818			254,949			632,497
Harmonized sales tax payable			153,562			-			-
Withholding taxes payable			622,634			17,892			270,118
Deferred revenue			236,253			-			116,692
Convertible notes payable (note 9)			2,145,173			2,190,292			2,498,975
Related party notes (note 10)			269,079			356,188			330,302
Total liabilities			4,062,519			2,819,321			3,876,865

Stockholders' deficit
Common stock; $0.01 par value, 100,000,000 shares authorized; 23,767,535 shares issued and
outstanding (note 11)			237,676			50,218			135,216
Additional paid-in capital			6,305,876			5,631,664			5,716,666
Accumulated other comprehensive income (loss)			32,543			(16,879	)		21,718
Accumulated deficit			(9,453,727	)		(7,274,304	)		(8,819,549	)
Total Stockholders' deficit			(2,877,632	)		(1,609,301	)		(2,945,949	)

Total liabilities and Stockholders' deficit		$	1,184,887		$	1,210,020		$	930,916

Commitments (note 12)

Subject to Report of Independent Registered Public Accounting Firm dated July 31, 2012

GREENESTONE HEALTHCARE CORPORATION

Consolidated Interim Statement of Changes in Stockholders’ Deficit

(Expressed in U.S. $)

(Unaudited)

	Common Stock						Accumulated
	Shares		Amount		Additional Paid-in Capital		Other Comprehensive (Loss) Income			Accumulated Deficit			Total
Balance, December 31, 2010		5,021,764	$	50,218	$	5,631,664	$	(12,855	)	$	(6,322,688	)	$	(653,661	)
Foreign currency translation		-		-		-		(4,024	)		-			(4,024	)
Net loss, six month period ended June 30, 2011		-		-		-		-			(951,616	)		(951,616	)
Balance, June 30, 2011		5,021,764	$	50,218	$	5,631,664	$	(16,879	)	$	(7,274,304	)	$	(1,609,301	)

Balance, December 31, 2011		13,521,568	$	135,216	$	5,716,666	$	21,718		$	(8,819,549	)	$	(2,945,949	)
Common stock issued for convertible note (note 9)		10,245,967		102,460		589,210		-			-			691,670
Foreign currency translation		-		-		-		10,825			-			10,825
Net loss, six month period ended June 30, 2012		-		-		-		-			(634,178	)		(634,178	)
Balance, June 30, 2012		23,767,535	$	237,676	$	6,305,876	$	32,543		$	(9,453,727	)	$	(2,877,632	)

Subject to Report of Independent Registered Public Accounting Firm dated July 31, 2012

GREENESTONE HEALTHCARE CORPORATION

Consolidated Interim Statement of Operations

(Expressed in U.S. $)

(Unaudited)

	Three Month Period Ended June 30,						Six Month Period Ended June 30,
	2012			2011			2012			2011
Revenues (note 6)	$	1,348,582		$	286,925		$	2,605,993		$	510,713
Cost of services provided		245,750			165,246			496,928			295,187
Gross margin		1,102,832			121,679			2,109,065			215,526

Operating expenses
Continuing education		5,511			5,592			19,538			5,592
Depreciation		55,900			24,593			106,078			47,959
General and administrative		173,066			103,524			307,906			131,846
Management fees (note 10)		49,577			355,888			79,544			355,888
Meals and entertainment		1,950			519			2,434			2,479
Medical records		35,012			27,178			63,236			41,225
Professional fees		37,702			29,761			57,313			131,577
Rent (note 10)		209,744			101,979			374,793			216,588
Salaries and wages		821,154			192,221			1,594,049			232,933
Subcontract fees		10,460			-			19,086			-
Supplies		49,962			-			93,334			-
Travel		17,130			805			25,932			1,055
Total operating expenses		1,467,168			842,060			2,743,243			1,167,142

Net loss applicable to common shareholders	$	(364,336	)	$	(720,381	)	$	(634,178	)	$	(951,616	)

Accumulated other comprehensive loss
Foreign currency translation adjustment		65,604			(3,322	)		10,825			(4,024	)

Total comprehensive loss	$	(298,732	)	$	(723,703	)	$	(623,353	)	$	(955,640	)

Basic and diluted loss per common share	$	(0.02	)	$	(0.14	)	$	(0.04	)	$	(0.19	)

Weighted average shares outstanding		15,263,542			5,021,764			14,392,555			5,021,764

Subject to Report of Independent Registered Public Accounting Firm dated July 31, 2012

GREENESTONE HEALTHCARE CORPORATION

Consolidated Interim Statement of Cash Flows

(Expressed in U.S. $)

(Unaudited)

	Three Month Period Ended June 30,						Six Month Period Ended June 30,
	2012			2011			2012			2011
Operating activities
Net loss	$	(364,336	)	$	(720,381	)	$	(634,178	)	$	(951,616	)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation		55,900			24,593			106,078			47,959
Management fees		49,577			93,313			79,544			93,313
		(258,859	)		(602,475	)		(448,556	)		(810,344	)

Changes in operating assets and liabilities
Accounts receivable		5,372			(89,216	)		(122,756	)		(154,234	)
Harmonized sales tax		79,035			-			159,495			-
Prepaid expenses		33,063			2,481			(11,895	)		597
Inventory		(4,825	)		(60	)		(5,056	)		(402	)
Accounts payable and accrued liabilities		111,654			(155,078	)		3,321			(25,688	)
Withholding taxes payable		158,030			17,892			352,516			-
Deferred revenue		71,584			-			119,560			-
Net cash provided by (used in) operating activities		195,054			(826,456	)		46,629			(990,071	)
Investing activities
Purchase of fixed assets		(41,821	)		(338,897	)		(113,726	)		(366,372	)
Net cash provided by investing activities		(41,821	)		(338,897	)		(113,726	)		(366,372	)

Financing activities
Repayment of bank indebtedness		-			-			-			(15	)
Proceeds from convertible notes payable		(656,241	)		1,161,619			(433,346	)		1,676,358
Proceeds from issuance of common stock		102,459			-			102,460			-
Proceeds from additional paid-in capital		589,210			-			589,210			-
Repayment of related party notes		(46,171	)		54,495			(61,223	)		(48,707	)
Net cash provided by (used in) financing activities		(10,743	)		1,216,114			197,101			1,627,636
Effect of exchange rate on cash		65,604			(4,726	)		10,825			(29,003	)

Net change in cash		208,094			46,035			140,829			242,190
Beginning cash balance (deficiency)		(95,546	)		244,531			(28,281	)		48,376
Ending cash balance	$	112,548		$	290,566		$	112,548		$	290,566

Supplemental cash flow information
Cash paid for interest	$	4,225		$	-		$	25,872		$	-
Cash paid for income taxes	$	-		$	-		$	-		$	-

Subject to Report of Independent Registered Public Accounting Firm dated July 31, 2012

GREENESTONE HEALTHCARE CORPORATION

Notes to the Consolidated Interim Financial Statements

(Expressed in U.S. $)

June 30, 2012

Note 1 - Nature of business

GreeneStone Healthcare Corporation (the “Company”) was incorporated under the laws of the state of Colorado, USA, on April 1, 1993. Effective May 2012, the Company changed the corporate name to GreeneStone Healthcare Corporation from Nova Natural Resources Corporation. As at June 30, 2012, the Company owns 100% of the outstanding shares of each of 1816191 Ontario Limited and Greenestone Clinic Muskoka Inc., both of which were incorporated in 2010 under the laws of the Province of Ontario, Canada. 1816191 Ontario Limited and Greenestone Clinic Muskoka Inc. provide medical services to various patients in clinics located in two regions in Ontario, Canada; the city of Toronto and the regional municipality of Muskoka. The Company also has a 33.5% interest in Waterstone Clinic Holdings Inc. (“Waterstone”), a joint venture that primarily operates as an eating disorder facility in the city of Toronto, Ontario. These consolidated interim financial statements have been prepared in accordance with United States generally accepted accounting principles ("US GAAP").

Note 2 – Going concern

The Company’s financial statements have been prepared in accordance with US GAAP applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations in the normal course of business. As at June 30, 2012, the Company has a working capital deficiency of $3,526,333 and accumulated deficit of $9,453,727. Accordingly, the Company will be dependent upon the raising of additional capital through placement of common stock, and, or debt financing 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. These consolidated interim 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 operations.

Note 3 - Significant accounting policies

The accounting policies of the Company are in accordance with US GAAP applied on a basis consistent with that of the preceding year. Outlined below are those policies considered particularly significant.

Changes in accounting policies

Effective April 1, 2012, the Company changed its accounting policy for the presentation of the statement of operations by reclassifying the provision for bad debts associated with patient service revenue from an operating expense to a deduction from patient service revenue. Additionally, the Company has enhanced its disclosures surrounding its policies for recognizing revenue and assessing bad debts. This accounting policy change is in accordance with update No. 2011-07 - Health Care Entities (Topic 954): Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities issued by the Financial Accounting Standards Board (FASB). The changes in accounting policies do not affect net income for the comparative figures.

Subject to Report of Independent Registered Public Accounting Firm dated July 31, 2012

GREENESTONE HEALTHCARE CORPORATION

Notes to the Consolidated Interim Financial Statements

(Expressed in U.S. $)

June 30, 2012

Note 3 - Significant accounting policies (cont’d)

Principals of consolidation

The accompanying consolidated interim financial statements include the accounts of the Company, its two subsidiaries and joint venture, as noted in note 1. All inter-company transactions and balances have been eliminated on consolidation.

The Company’s subsidiaries functional currency is the Canadian dollar (CAD), while the Company’s reporting currency is the US dollar (USD). All transactions initiated in Canadian dollars are translated into US dollars in accordance with ASC 830, "Foreign Currency Translation" as follows:

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

ii) Equity at historical rates.

iii) Revenue and expense items at the average rate of exchange prevailing during the period.

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

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

Revenue recognition

There are several main streams of revenue for the Company.

Revenue recognized in 1816191 Ontario Limited occurs when the service is provided to the patient, at which time title to the service, significant risks of ownership have passed and ultimate collection is reasonably assured.

Revenue recognized in Greenestone Clinic Muskoka Inc. occurs proportionately over the term of the patients’ treatment, at which time title to the service, significant risks of ownership and ultimate collection is reasonably assured. Customer deposits represents monies held by the Company from when the patients become admitted to treatment and are fully refunded, less any patients personal withdrawals during the time of treatment, at the time of discharge. Deferred revenue represents monies deposited by the patients for future services to be provided by the Company. Such monies will be recognized into revenue as the patient progresses through their treatment term.

Rental income is recognized on a straight-line basis over the term of the rental period, at which time title to the service, significant risks of ownership and ultimate collection is reasonably assured.

The consolidated accounts receivable balance is measured net of a reserve for doubtful accounts.

Subject to Report of Independent Registered Public Accounting Firm dated July 31, 2012

GREENESTONE HEALTHCARE CORPORATION

Notes to the Consolidated Interim Financial Statements

(Expressed in U.S. $)

June 30, 2012

Note 3 - Significant accounting policies (cont’d)

Use of estimates

The preparation of consolidated interim financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the recognition, measurement and disclosure of amounts reported in the financial statements and accompanying notes. The reported amounts, including revenue recognized in Greenestone Clinic Muskoka Inc., depreciation, allowance for doubtful accounts, inventory, furniture and equipment additions, deferred revenue and note disclosures are determined using management's best estimates based on assumptions that reflect the most probable set of economic conditions and planned courses of action. Actual results will differ from such estimates.

Non-monetary transactions

The Company’s policy is to measure an asset exchanged or transferred in a non-monetary transaction at the more reliably measurable of the fair value of the asset given up and the fair value of the asset received, unless:

i)	The transaction lacks commercial substance;

ii)	The transaction is an exchange of a product or property held for sale in the ordinary course of business for a product or property to be sold in the same line of business to facilitate sales to customers other than the parties to the exchange;

iii)	Neither the fair value of the asset received nor the fair value of the asset given up is reliably measurable; or

iv)	The transaction is a non-monetary non-reciprocal transfer to owners that represents a spin-off or other form of restructuring or liquidation.

Interest in joint venture

The Company has a 33.5% interest in a joint venture agreement for the operation of an eating disorder clinic. The Company is accounting for this investment using the equity method of accounting.

Cash

The Company's policy is to disclose bank balances under cash, including bank overdrafts with balances that fluctuate frequently from being positive to overdrawn and term deposits with a maturity period of three months or less from the date of acquisition.

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, harmonized sales tax payable, withholding taxes payable, convertible notes payable and related party notes.

Subject to Report of Independent Registered Public Accounting Firm dated July 31, 2012

GREENESTONE HEALTHCARE CORPORATION

Notes to the Consolidated Interim Financial Statements

(Expressed in U.S. $)

June 30, 2012

Note 3 - Significant accounting policies (cont’d)

Financial instruments (cont’d)

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

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

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

The Company does not have assets or liabilities measured at fair value on a recurring basis at June 30, 2012. The Company did not have any fair value adjustments for assets and liabilities measured at fair value on a non-recurring basis during the six month period ended June 30, 2012.

Fixed assets

Fixed assets are recorded at cost. Depreciation is calculated on the declining balance method at the following annual rates:

Computer equipment	30%
Computer software	100%
Furniture and equipment	30%
Medical equipment	25%

Leasehold improvements are depreciated using the straight-line method over the term of the lease. Half rates are used for all fixed assets in the year of acquisition.

Leases

Leases are classified as either capital or operating leases. Leases that transfer substantially all of the benefits and inherent risks of ownership of property to the Company are accounted for as capital leases. At the time a capital lease is entered into, an asset is recorded together with its related long-term obligation to reflect the acquisition and financing. Equipment recorded under capital leases is amortized on the same basis as described above. Payments under operating leases are expensed as incurred.

Subject to Report of Independent Registered Public Accounting Firm dated July 31, 2012

GREENESTONE HEALTHCARE CORPORATION

Notes to the Consolidated Interim Financial Statements

(Expressed in U.S. $)

June 30, 2012

Note 3 - Significant accounting policies (cont’d)

Income taxes

The Company uses the asset and liability method to account for income taxes. Under this method, future income tax assets and liabilities are determined based on the difference between the carrying value and the tax basis of the assets and liabilities. Any change in the net amount of future income tax assets and liabilities is included in income. Future income tax assets and liabilities are determined based on enacted or substantively enacted tax rates and laws which are expected to apply to the Company's taxable income for the periods in which the assets and liabilities will be recovered. Future income tax assets are recognized when it is more likely than not that they will be realized.

Earnings per share information

FASB ASC 260, “Earnings Per Share” provides for calculation of "basic" and "diluted" earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income (loss) applicable to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity similar to fully diluted earnings per share. Basic and diluted loss per share was the same, at the reporting dates, as there were no common stock equivalents outstanding.

Share based expenses

ASC 718 "Compensation - Stock Compensation" codified SFAS No. 123 prescribes accounting and reporting standards for all stock-based payments award to employees, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights that may be classified as either equity or liabilities. The Company should determine if a present obligation to settle the share-based payment transaction in cash or other assets exists. A present obligation to settle in cash or other assets exists if: (a) the option to settle by issuing equity instruments lacks commercial substance or (b) the present obligation is implied because of an entity's past practices or stated policies. If a present obligation exists, the transaction should be recognized as a liability; otherwise, the transaction should be recognized as equity.

The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50 "Equity - Based Payments to Non-Employees" which codified SFAS 123 and the Emerging Issues Task Force consensus in Issue No. 96-18 ("EITF 96-18"), "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services". Measurement of share-based payment transactions with non-employees shall be based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction should be determined at the earlier of performance commitment date or performance completion date.

Note 4 – Recently issued accounting pronouncements

In December 2011 the FASB issued new guidance on the disclosures about offsetting assets and liabilities. The new guidance enhances disclosures required by US GAAP by requiring improved information about financial instruments and derivative instruments. The new guidance is to be adopted for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods. The new guidance is to be retrospectively applied for all comparative periods presented. The Company does not expect adoption of the new guidance to have a material impact on the consolidated interim financial statements.

Subject to Report of Independent Registered Public Accounting Firm dated July 31, 2012

GREENESTONE HEALTHCARE CORPORATION

Notes to the Consolidated Interim Financial Statements

(Expressed in U.S. $)

June 30, 2012

Note 5 – Financial instruments

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, June 30, 2012:

(a)	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 cash and accounts receivable.

Credit risk associated with cash is assessed as low and is unchanged from prior quarter. The Company ensures that financial assets and liabilities are placed with financial institutions with high credit ratings in order to mitigate the risk.

With respect to accounts receivable, the Company receives most of its revenues in 1816191 Ontario Inc. from the Ontario Ministry of Health and Long-Term Care, a provincially regulated program. Allowances are provided for potential losses that have been incurred at the balance sheet date. Concentration of credit risk has not changed from the prior reporting period, March 31, 2012. Credit risk is assessed as low as at June 30, 2012 and remains unchanged from the prior reporting period, March 31, 2012.

Credit risk associated with accounts receivable of 1816191 Ontario Inc. is mitigated by frequent reviews of billing reports submitted to the Ontario Ministry of Health and Long-Term Care, to ensure accuracy and filing on a timely basis.

Credit risk associated with accounts receivable of Greenestone Clinic Muskoka Inc. is mitigated due to balances from several customers, as well as through credit checks and frequent reviews of receivables to ensure timely collection.

(b)	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 $3,526,333 and accumulated deficit of $9,453,727. As disclosed in note 2, the Company will be 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. Liquidity risk is assessed as high as at June 30, 2012 and remains unchanged from the prior reporting period, March 31, 2012.

Subject to Report of Independent Registered Public Accounting Firm dated July 31, 2012

GREENESTONE HEALTHCARE CORPORATION

Notes to the Consolidated Interim Financial Statements

(Expressed in U.S. $)

June 30, 2012

Note 5 – Financial instruments (cont’d)

(c)	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.

i.	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. Interest rate risk is assessed as low as at June 30, 2012 and remains unchanged from the prior reporting period, March 31, 2012. Consistent with the prior reporting period, March 31, 2012, the Company is exposed to interest rate risk on its bank indebtedness as this liability is based on floating rates of interest, which have been stable during the current reporting period.

ii.	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. Currency risk is assessed as low as at June 30, 2012 and remains unchanged from the prior reporting period, March 31, 2012. The Company is subject to currency risk as its subsidiaries operate in Canada and are subject to fluctuations in the Canadian dollar. The Company is exposed to currency risk through cash, accounts receivable, harmonized sales taxes receivable, bank indebtedness, accounts payable and accrued liabilities, withholding taxes payable, convertible notes payable and related party notes denominated in Canadian dollars. During the six month period ended June 30, 2012, the Company recognized a gain of $10,825 on foreign exchange. Based on the net exposures at June 30, 2012, a 10% depreciation or appreciation of the Canadian dollar against the U.S. dollar would result in an approximate $10,000 increase or decrease in the Company’s after-tax net earnings, respectively. The Company has not entered into any hedging agreements to mediate this risk. There has been no change to the Company’s susceptibility to currency risk since the last reporting period, March 31, 2012.

iii.	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. As consistent with the prior reporting period, March 31, 2012, the Company is not exposed to this risk.

Subject to Report of Independent Registered Public Accounting Firm dated July 31, 2012

GREENESTONE HEALTHCARE CORPORATION

Notes to the Consolidated Interim Financial Statements

(Expressed in U.S. $)

June 30, 2012

Note 6 –Accounts receivable

The consolidated accounts receivable balance consists primarily of amounts due from the following parties.

	June 30, 2012		June 30, 2011		December 31, 2011
The Ontario Ministry of Health and Long-Term Care	$	168,363	$	133,821	$	173,243
Greenestone Clinic Muskoka Inc. clinic patients		99,963		-		13,167
Other accounts receivable		42,853		61,320		2,013
	$	311,179	$	195,141	$	188,423

The Company is economically dependent on, and earns a significant portion of, revenues from the Ontario Ministry of Health and Long-Term Care for its ability to carry out its normal activities. These revenues account for 32% of the Company’s consolidated sales in the three month period ending June 30, 2012 (Three month period ending March 31, 2012: 35%).

Note 7 –Fixed assets

					Net Book Value
	Cost		Accumulated Amortization		June 30, 2012		June 30, 2011		December 31, 2011
Computer equipment	$	22,151	$	3,447	$	18,704	$	5,474	$	11,910
Computer software		27,069		13,917		13,153		20,124		14,315
Furniture and equipment		396,221		96,460		299,761		352,945		322,282
Leasehold improvements		128,350		43,051		85,299		58,735		61,353
Medical equipment		360,400		128,616		231,784		223,828		231,192
	$	934,192	$	285,481	$	648,701	$	661,106	$	641,052

Note 8 – Comparative figures

Certain comparative figures have been reclassified to conform to the current period's financial presentation. The net losses for the previous periods are not affected by this reclassification.

Subject to Report of Independent Registered Public Accounting Firm dated July 31, 2012

GREENESTONE HEALTHCARE CORPORATION

Notes to the Consolidated Interim Financial Statements

(Expressed in U.S. $)

June 30, 2012

Note 9 – Convertible notes payable

The notes are convertible at the option of the holder up to the maturity date; any convertible debentures still outstanding as at their maturity date will automatically convert into common stock of the Company. Accordingly, these convertible notes payable are considered current liabilities by nature. The Company has adequate common shares in its treasury to cover the conversions if all notes are exercised.

The Company has the following convertible notes outstanding.

Note		Amount		Issuance Date	Conversion Price in USD		Number of Shares		Effect on Dilution		Maturity Date

	1	$	25,000	December 1, 2010	$	0.10		250,000	1.04	%	December 1, 2012
	2		9,822	December 1, 2010	$	0.10		98,220	0.41	%	December 1, 2012
	3		24,555	December 1, 2010	$	0.10		245,550	1.02	%	December 1, 2012
	4		24,555	December 1, 2010	$	0.10		245,550	1.02	%	December 1, 2012
	5		49,110	December 1, 2010	$	0.10		491,100	2.02	%	December 1, 2012
	6		9,822	December 1, 2010	$	0.10		98,220	0.41	%	December 1, 2012
	7		10,371	December 1, 2010	$	0.10		103,710	0.43	%	December 1, 2012
	8		14,733	December 1, 2010	$	0.10		147,330	0.62	%	December 1, 2012
	9		24,555	December 1, 2010	$	0.10		245,550	1.02	%	December 1, 2012
	10		24,555	December 1, 2010	$	0.10		245,550	1.02	%	December 1, 2012
	11		49,110	December 1, 2010	$	0.10		491,100	2.02	%	December 1, 2012
	12		47,146	January 31, 2011	$	0.10		471,456	1.95	%	January 31, 2013
	13		23,382	March 30, 2011	$	0.15		163,700	0.68	%	March 30, 2013
	14		50,000	March 30, 2011	$	0.15		333,333	1.38	%	March 30, 2013
	15		15,000	March 30, 2011	$	0.15		100,000	0.42	%	March 30, 2013
	16		29,466	March 30, 2011	$	0.15		196,440	0.82	%	March 30, 2013
	17		9,822	March 31, 2011	$	0.15		65,480	0.27	%	March 31, 2013
	18		9,822	March 31, 2011	$	0.15		65,480	0.27	%	March 31, 2013
	19		9,822	March 31, 2011	$	0.15		65,480	0.27	%	March 31, 2013
	20		98,220	March 31, 2011	$	0.15		654,800	2.68	%	March 31, 2013
	21		49,110	March 31, 2011	$	0.15		327,400	1.36	%	March 31, 2013
	22		29,466	March 31, 2011	$	0.15		196,440	0.82	%	March 31, 2013
	23		19,644	March 31, 2011	$	0.15		130,960	0.55	%	March 31, 2013
	24		4,911	March 31, 2011	$	0.15		32,740	0.14	%	March 31, 2013
	25		24,555	April 15, 2011	$	0.10		245,550	1.02	%	April 15, 2013
	26		5,893	June 15, 2011	$	0.10		58,932	0.25	%	June 15, 2013
	27		7,858	June 15, 2011	$	0.10		78,576	0.33	%	June 15, 2013
	28		3,929	June 15, 2011	$	0.10		39,288	0.17	%	June 15, 2013
	29		196,440	June 24, 2011	$	0.15		1,309,600	5.22	%	June 24, 2013
	30		29,466	June 30, 2011	$	0.15		196,440	0.82	%	June 30, 2013

*The actual number of shares issued if converted will vary depending on the exchange rate at time of conversion.

Subject to Report of Independent Registered Public Accounting Firm dated July 31, 2012

GREENESTONE HEALTHCARE CORPORATION

Notes to the Consolidated Interim Financial Statements

(Expressed in U.S. $)

June 30, 2012

Note 9 – Convertible notes payable (cont’d)

Note		Amount		Issuance Date	Conversion Price in USD		Number of Shares		Effect on Dilution		Maturity Date

	31	$	15,715	June 30, 2011	$	0.15		104,768	0.44	%	June 30, 2013
	32		68,754	June 30, 2011	$	0.15		458,360	1.89	%	June 30, 2013
	33		14,242	June 30, 2011	$	0.15		94,946	0.40	%	June 30, 2013
	34		49,110	June 30, 2011	$	0.15		327,400	1.36	%	June 30, 2013
	35		142,419	June 30, 2011	$	0.15		949,460	3.84	%	June 30, 2013
	36		4,911	July 30, 2011	$	0.15		32,740	0.14	%	July 30, 2013
	37		4,911	July 30, 2011	$	0.15		32,740	0.14	%	July 30, 2013
	38		4,911	July 30, 2011	$	0.15		32,740	0.14	%	July 30, 2013
	39		10,000	July 30, 2011	$	0.15		66,667	0.28	%	July 30, 2013
	40		9,822	July 30, 2011	$	0.15		65,480	0.27	%	July 30, 2013
	41		8,840	July 30, 2011	$	0.15		58,932	0.25	%	July 30, 2013
	42		2,210	July 30, 2011	$	0.15		14,733	0.06	%	July 30, 2013
	43		4,911	August 26, 2011	$	0.15		32,740	0.14	%	August 26, 2013
	44		49,110	August 26, 2011	$	0.15		327,400	1.36	%	August 26, 2013
	45		49,110	October 26, 2011	$	0.10		491,100	2.02	%	October 26, 2013
	46		98,220	October 31, 2011	$	0.15		654,800	2.68	%	October 31, 2013
	47		68,754	November 24, 2011	$	0.15		458,360	1.89	%	November 24, 2013
	48		14,733	November 30, 2011	$	0.15		98,220	0.41	%	November 30, 2013
	49		14,733	November 30, 2011	$	0.15		98,220	0.41	%	November 30, 2013
	50		23,180	November 30, 2011	$	0.15		154,533	0.65	%	November 30, 2013
	51		25,160	December 31, 2011	$	0.15		167,733	0.70	%	December 31, 2013
	52		19,644	December 31, 2011	$	0.15		130,960	0.55	%	December 31, 2013
	53		9,822	December 31, 2011	$	0.15		65,480	0.27	%	December 31, 2013
	54		22,100	December 31, 2011	$	0.15		147,330	0.62	%	December 31, 2013
	55		44,199	December 31, 2011	$	0.15		294,660	1.22	%	December 31, 2013
	56		49,110	December 31, 2011	$	0.15		327,400	1.36	%	December 31, 2013
	57		19,644	December 31, 2011	$	0.15		130,960	0.55	%	December 31, 2013
	58		14,733	December 31, 2011	$	0.15		98,220	0.41	%	December 31, 2013
	59		50,000	January 15, 2012	$	0.20		250,000	1.04	%	January 15, 2014
	60		9,822	January 24, 2012	$	0.20		49,110	0.21	%	January 24, 2014
	61		7,367	January 26, 2012	$	0.20		36,833	0.15	%	January 26, 2014
	62		29,466	January 31, 2012	$	0.20		147,330	0.62	%	January 31, 2014
	63		9,822	February 10, 2012	$	0.20		49,110	0.21	%	February 10, 2014
	64		98,220	March 4, 2012	$	0.20		491,100	2.02	%	March 4, 2014
	65		98,220	April 18, 2012	$	0.45		218,267	0.91	%	April 18, 2014
	66		49,110	May 31, 2012	$	1.00		49,110	0.21	%	May 31, 2014
		$	2,145,173					14,601,917

*The actual number of shares issued if converted will vary depending on the exchange rate at time of conversion.

Subject to Report of Independent Registered Public Accounting Firm dated July 31, 2012

GREENESTONE HEALTHCARE CORPORATION

Notes to the Consolidated Interim Financial Statements

(Expressed in U.S. $)

June 30, 2012

Note 9 – Convertible notes payable (cont’d)

During the three month period ended June 30, 2012, the Company issued 10,245,967 common shares from convertible notes payable at the following conversion rates:

Amount		Conversion Price		Number of Shares
$	50,500	$	0.01		5,050,000
	276,450	$	0.10		2,764,500
	364,720	$	0.15		2,431,467
$	691,670				10,245,967

During the three month period ended June 30, 2012, the Company issued a $98,220 of Series I convertible debenture for cash consideration. This debenture bears no interest and is convertible into common shares of the Company at the rate of $0.45 per share between six months after their date of issuance and their maturity date of two years from their date of issuance. If the convertible debenture is still outstanding at the date of its maturity, it will automatically convert into common stock at the rate of $0.45 per share.

During the three month period ended June 30, 2012, the Company issued a $49,110 Series K convertible debenture in satisfaction of liabilities related to services provided to the Company. This debenture bears no interest and is convertible into common shares of the Company at $1.00 per share on the convertible debenture between six months after the date of issuance and the maturity date of two years from the date of issuance. If the convertible debenture is still outstanding at the date of its maturity, it will automatically convert into common stock at the rate of $1.00 per share.

Note 10 –Related party transactions

The balance owing to related party notes as at June 30, 2012 is to Greenestone Clinic Inc. The Company is related to Greenestone Clinic Inc. as it is controlled by one of the Company’s directors. The balance owing is non-interest bearing, not secured and has no specified terms of repayment.

The Company had management fees totaling $49,577 during the three month period ended June 30, 2012 to the director for services which are included in management fees.

The Company entered into an agreement to lease premises from Cranberry Cove Holdings Ltd. at market terms. Cranberry Cove Holdings Ltd. is related to the Company by virtue of its shareholder being a director of the Company.

The Company entered into a consulting agreement with Waterstone. Waterstone is related to the Company by virtue of its president being a director and president of the Company. Consultant fees are measured at the exchange amount, being the fair market value to provide related consulting fees. During the three month period ended June 30, 2012, the Company had consulting income from Waterstone of $0.

All related party transactions occur in the normal course of operations and are measured at the exchange amount, as agreed upon by the related parties.

Subject to Report of Independent Registered Public Accounting Firm dated July 31, 2012

GREENESTONE HEALTHCARE CORPORATION

Notes to the Consolidated Interim Financial Statements

(Expressed in U.S. $)

June 30, 2012

Note 11 -Stockholders’ deficit

Authorized common stock

During the three month period ended June 30, 2012, the Company filed a Certificate of Amendment with the Colorado Secretary of State to increase the aggregate number of shares which the Company has authority to issue to one hundred million (100,000,000) common shares, issued at $0.01 par value per share from 50,000,000 common stock with par value at $0.01. The amendment was approved by the Colorado Secretary of State in May 2012.

Issued common stock

The Company has a total of 23,767,535 issued and outstanding common shares as at June 30, 2012. During the three month period ended June 30, 2012, the Company issued 10,245,967 of common stock at $0.01 per share. Of the issued common stock, $691,670 notes were converted into 5,195,967 restricted common stock and 4,550,000 unrestricted common stock.

Net loss per common share

Net loss per share is computed using the basic and diluted weighted average number of common shares outstanding during the period. The weighted-average number of common shares outstanding during each period is used to compute basic loss per share. Diluted loss per share is computed using the weighted average number of shares and dilutive potential common shares outstanding unless common stock equivalent shares are anti-dilutive. Dilutive potential common shares are additional common shares that will be exercised. Basic net loss per common share is based on the weighted average number of shares of common stock outstanding during the three month period ended June 30, 2012.

Note 12 – Commitments

The Company is committed under three non-cancellable operating lease agreements for rental of premises. The rental of premise agreement for the subsidiary, 1816191 Ontario Inc. expires July 31, 2013 and the premise agreements for the subsidiary, Greenestone Clinic Muskoka Inc. expire May 31, 2013, July 31, 2013 and March 31, 2016 (note 10).

The joint venture is committed under a consulting agreement for consulting services from the Company (note 10). The agreement expires June 2017.

Future minimum annual payment requirements are as follows:

2012	$	449,946
2013		861,586
2014		687,736
2015		687,736
2016		201,547
Thereafter		19,742

	$	2,908,293

Subject to Report of Independent Registered Public Accounting Firm dated July 31, 2012

GREENESTONE HEALTHCARE CORPORATION

Notes to the Consolidated Interim Financial Statements

(Expressed in U.S. $)

June 30, 2012

Note 13 – Interest in joint venture

The Company owns 33.5% interest in Waterstone, a joint venture operating as an eating disorder clinic. The facility intends to begin operations in the fall of 2012. There has been no activity in the joint venture as at June 30, 2012 that would impact the Company’s interim consolidated financial statements.

The joint venture has consented to convert on a one for one basis with the Company up to 5,950,000 common shares of Waterstone. The shares are non-retractable and allowable until June 30, 2015. Both the Company and Waterstone have adequate common shares in its treasury to cover the conversions if all notes are exercised.

Note 14 -Income taxes

Current or future U.S. federal income tax provision or benefits have not been provided for any of the periods presented because the Company has experienced operating losses since inception. Under ACS 740 “Income Taxes,” when it is more likely than not that a tax asset cannot be realized through future income the Company must allow for this future tax benefit. The Company has provided a full valuation allowance on the net future tax asset, consisting of net operating loss carry forwards, because management has determined that it is more likely than not that they will not earn income sufficient to realize the future tax assets during the carry forward period.

The Company has not taken a tax position that, if challenged, would have a material effect on the financial statements for the three month period ended June 30, 2012, applicable under ACS 740. As a result of the adoption of ACS 740, the Company did not recognize any adjustment to the liability for uncertain tax position and therefore did not record any adjustment to the beginning balance of accumulated deficit on the balance sheet.

The components of the Company’s future tax asset as of June 30, 2012, June 30, 2011 and December 31, 2011 are as follows:

	June 30, 2012			June 30, 2011			December 31, 2011
Net operating loss carry forward	$	9,453,727		$	7,274,304		$	8,819,549
Valuation allowance		(9,453,727	)		(7,274,304	)		(8,819,549	)
Net future tax asset	$	-		$	-		$	-

A reconciliation of income taxes computed at the 35% statutory rate to the income tax recorded is as follows:

	June 30, 2012			June 30, 2011			December 31, 2011
Tax at statutory rate	$	221,962		$	333,066		$	873,901
Valuation allowance		(221,962	)		(333,066	)		(873,901	)
Net future tax asset	$	-		$	-		$	-

The Company did not pay any income taxes during the three month periods ended June 30, 2012, June 30, 2011 and the year ended December 31, 2011.

The net federal operating loss carry forwards will expire in 2030 through 2032. This carry forward may be limited upon the consummation of a business combination under IRC Section 381.

Note 15 – Management of capital

The Company’s objectives of capital management are to safeguard its ability to support the Company’s normal operating requirements on an ongoing basis. The Company defines capital as the total of its total assets less total liabilities.

The Company manages its capital structure and makes adjustments in light of changes in its economic environment and the risk characteristics of the Company’s assets. To effectively manage the Company’s capital requirements, the Company has in place a planning, budgeting and forecasting process to help determine the funds required to ensure the Company has the appropriate liquidity to meet its operating and growth objectives. The Company is dependent upon the raising of additional capital through placement of common stock, and, or debt financing to support its normal operating requirements. 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. As at June 30, 2012, there was no externally imposed capital requirement to which the Company is subject and with which the Company has not complied.

Subject to Report of Independent Registered Public Accounting Firm dated July 31, 2012

GREENESTONE HEALTHCARE CORPORATION

Notes to the Consolidated Interim Financial Statements

(Expressed in U.S. $)

June 30, 2012

Note 16 – Asset retirement obligations

As at June 30, 2012, the Company has no legal obligations associated with the retirement of its tangible long-lived assets that it is required to settle.

Note 17 – Segmented information

The Company has two reportable segments: gastrointestinal clinical services and in-patient addiction treatments. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on profit or loss from operations before income taxes not including nonrecurring gains and losses and foreign exchange gains and losses. The Company’s reportable segments are strategic business units that offer different services. They are managed separately because each business requires different technology, specialists and marketing strategies.

	1816191 Ontario Limited			Greenestone Clinic Muskoka Inc.			June 30, 2012 Total
Revenues from external customers	$	880,948		$	1,725,045		$	2,605,993
Interest expense		8,350			17,522			25,872
Depreciation of fixed assets		42,785			63,293			106,078
Segment loss		(83,290	)		(550,888	)		(634,178	)
Segment assets		584,884			600,003			1,184,887

Subject to Report of Independent Registered Public Accounting Firm dated July 31, 2012

Item 2. Management Discussion and Analysis

The following Management's Discussion and Analysis ("MD&A) for the three month period ended June 30, 2012 compared with the three month period ended June 30, 2011, provides readers with an overview of the operations of

Greenestone Healthcare Corporation ("Greenestone"). The MD&A provides information that the management of Greenestone believes is important to access and understand the results of operations and the financial condition of the Company. Our objective is to present readers with a view of Greenestone through the eyes of management.

About Greenestone Healthcare Corporation (“Greenestone”)

Greenestone opened its first clinic for endoscopy procedures in the last days of the second quarter of 2010 in North York, Ontario. All of the revenue for Greenestone was from medical procedures performed in its first clinic until the third quarter of 2011. During the third quarter of 2011, Greenestone opened its addiction treatment center in Muskoka, Ontario. In the first quarter of 2012 Greenestone added a second clinic performing endoscopy procedures in downtown Toronto, and in the second quarter of 2012 Greenestone opened another addiction treatment aftercare facility in downtown Toronto. Greenestone also became a partner in a new entity that will be opening an eating disorder clinic in Mid-Town Toronto. This venture will be approximately 33% owned by Greenestone but by virtue of its arrangement with the other shareholders of the new venture it could be a 100% owner within three years if other shareholders exercise an option to exchange their shares for shares for Greenestone. This entity will begin operation in the fall of 2012, but due to the percentage ownership in this venture the results of this operation will not be reported with the results of Greenestone’s other operations.

During the second quarter of 2012, the endoscopy procedures performed, gave rise to gross revenue of $446,339 compared to gross revenue of $286,295 for the second quarter of 2011. Substantially all of this revenue was earned from the Ontario Health Insurance Plan (“OHIP”). As amounts owing from OHIP are backed by the government of Ontario, we see very little credit risk attributable to revenues billed to or owing from OHIP from time to time. The amount for the second quarter of 2012 increased by 36% over the second quarter of 2011. This increase was due mainly to internal growth and development including the performance of endoscopy procedures in the new facilities leased from the Albany Clinic. The total volume of procedures is still well under the overall capacity of the current facilities and equipment. Procedures at the new Albany Clinic were increased to two days per week starting in the second quarter of 2012.

Greenestone opened its addiction treatment center in the third quarter of 2011. The treatment center opened cautiously and took its first patients in July and August, most of which were done at nominal fee or no fee. Clients began to increase in September at a steady pace and the company generated $213,035 in revenue from the treatment center during the third quarter. The final quarter of 2011 continued to grow and revenue from treatments in the final quarter grew to $305,485 in the fourth quarter. Revenue in the first quarter of 2012 grew to $824,157. Revenue in the first quarter was impacted by the sudden and unexpected departure of key staff members at the end of February 2012. These departures were unexplained and management believes that it had sufficient contingency strategies in place to replace these key personnel less than 24 hours after they became aware of these departures. There were no loss of residents in the transition, however significant resources were deployed to meet this challenge including the unpaid extension of treatment for all of those affected by the change in staff. The staff members in question were all on temporary subcontract and management has replaced them all with permanent employees. Management believes that it has significant resources available to manage a growing number of residents in treatment. The new staff that have joined the company in March and April of 2012 are some of the most well regarded treatment professionals in Canada. Revenue in the most recent quarter was $902,243. Revenue continued to be affected by the change in senior staff. The new staff were all fully in place by the end of the second quarter and revenues began to rise towards the end of the quarter. There were no revenues for this line of business in the same quarter the year previous.

Key components of operating expenses during the second quarter ended June 30, 2012 were as follows:

-payments to doctors performing services: in general, the doctor performing the actual medical procedure will receive approximately 58% of the amounts we receive from OHIP as payment for the procedure performed; the cost of services provided Doctors fees of $245,750

-salaries and wages for the 3 month period ending June 30, 2012 were $821,154 which are broken down to be $77,131 for the Toronto Clinic staff and $744,023 for the Muskoka Clinic staff

-premises rent for the 3 month period ending June 30, 2012 of $209,744 which consists of $40,995 for the Toronto Clinic and $168,789 for the Muskoka Clinic and the Toronto aftercare clinic

-management fees of $49,577 were incurred in the second quarter of 2012, as compared to $355,888 for the second quarter, 2011.

The company raised an additional CDN$100,000 through the issue of convertible notes during the first quarter which are convertible at a price of $0.45 per share. Management also took management fees CDN$50,000 by way of a convertible note in the second quarter which notes are convertible at a price of $1.00 per share.

Management's discussion of anticipated future operations contains predictions and projections which may constitute forward looking statements. The Private Securities Litigation Reform Act of 1995, including provisions contained in Section 21E of the Securities Exchange Act of 1934, provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements.

Forward-looking Information

This Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose any statements contained in this Form 10-K which is not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as "may", "will", "expect", "believe", "anticipate", "estimate", or "continue" or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties and actual results may differ materially depending on a variety of factors, many of which are not within the Company's control.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable because we are a smaller reporting company.

Item 4. Controls and Procedures

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Rule 13a-15(f). The Company's internal control over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America

Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management made an internal assessment of the effectiveness of our internal control over financial reporting as of September 30, 2011. In making this assessment, it used the Company’s new auditor and management staff and the Company’s bank account management team. Based on this evaluation, our management concluded that the internal control has become more effective since there has been a qualified internal accountant hired to prepare the Company’s financial statements in conjunction with the input of the President and CEO. Restrictions on Bank accounts have tightened and more oversight is given to the day to day cash balances. The Board of the Company has reviewed these statements and approved them . The board is a small board and two of the three board members are considered to be independent. There is no formal audit committee since the Board is small and the financial statements are reviewed by the whole board.

Part 2. OTHER INFORMATION

Item 1. Legal Proceedings

The subsidiary 1816191 Ontario Inc. received notice during the first quarter of 2011 that an individual that suffered a perforated colon during a colonoscopy procedure intended to litigate against the Company’s subsidiary 1816191 Ontario Inc. and the Doctor that performed the Procedure. The insurer for the doctor and the company were notified and there been no claim filed during the second quarter of 2012 or subsequent to the quarter end.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Securities Holders

Not applicable

Item 5. Other Matters

Not applicable

ITEM 6. Exhibits

	Exhibit No.	Description


	Exhibit 31.1	Section 302 Certification of the Chief Executive Officer

	Exhibit 32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2003

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

GREENESTONE HEALTHCARE CORPORATION

Registrant

	DATE:	August 14, 2012

	By:	/s/ Shawn Leon


	Shawn Leon


	President & CEO

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