Attached files

file filename
EX-32.1 - CERTIFICATION PURSUANT TO - ETHEMA HEALTH Corpgrst10k033115ex32_1.htm
EX-31.1 - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, - ETHEMA HEALTH Corpgrst10k033115ex31_1.htm
EX-32.2 - CERTIFICATION PURSUANT TO - ETHEMA HEALTH Corpgrst10k033115ex32_2.htm
EX-31.2 - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, - ETHEMA HEALTH Corpgrst10k033115ex31_2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

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

 

For the fiscal year ended: December 31, 2014

 

or

 

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

 

For the transition period from __________ to __________

 

Commission file number: 000-15078

 http:||www.sec.gov|Archives|edgar|data|792935|000072174813000058|image_001.gif

GreeneStone Healthcare 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.)

 

5734 Yonge Street, Suite 300

North York, Ontario, Canada M2M 4E7

(Address of principal executive offices)

 

(416) 222-5501

(Registrant’s telephone number, including area code)

 

Securities registered under Section 12(b) of the Exchange Act:

 

Title of each class

 

Name of each exchange on which registered
None N/A

 

Securities registered under Section 12(g) of the Act:

 

Common Stock, $0.01 par value per share

(Title of class)

 

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

 

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

 

   
 

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 last 90 days.

Yes[X] No [ ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes [X] No [ ]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not 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-K or any amendment to this Form 10-K. [ ]

 

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

 

Large accelerated filer [ ]   Accelerated filer [ ]
         
Non-accelerated filer [ ]   Smaller reporting company [X]

 

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

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on June 30, 2014, based on a closing price of $0.09 was approximately $2,754,865. As of April 10, 2015, the registrant had 46,134,787 shares of its common stock, par value $0.01 per share, outstanding.

  

Prepared By:

 

http:||www.sec.gov|Archives|edgar|data|792935|000072174813000058|jsblogo2.jpg

Sunny J. Barkats, Esq.

JSBarkats, PLLC

18 East 41st Street, 14th Floor

New York, NY 10017

P: (646) 502-7001

F: (646) 607-5544

www.JSBarkats.com

   
 

GREENESTONE HEALTHCARE CORP.

FOR THE FISCAL YEAR ENDED

DECEMBER 31, 2014

 

TABLE OF CONTENTS

 

      Page
PART I      
       
Item 1. Business.   2
Item 1A. Risk Factors.   5
Item 1B. Unresolved Staff Comments.   6
Item 2. Properties.   6
Item 3. Legal Proceedings.   6
Item 4. Mine Safety Disclosures.   6
     
PART II    
       
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.   7
Item 6. Selected Financial Data.   12
Item 7. Management’s Discussion and Analysis of Financial Condition and Results Of Operations.   13
Item 8. Financial Statements and Supplementary Data.   18
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.   76
Item 9A. Controls and Procedures.   76
Item 9B. Other Information.   77
       
PART III
       
Item 10. Directors, Executive Officers and Corporate Governance.   78
Item 11. Executive Compensation.   80
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.   83
Item 13. Certain Relationships and Related Transactions, and Director Independence.   84
Item 14. Principal Accounting Fees and Services.   85
     
PART IV
       
Item 15. Exhibits, Financial Statement Schedules.   86

 

   
 

Explanatory Note 

 

Overview of Restatement

 

In this Annual Report on Form 10-K, GreeneStone Healthcare Corporation (together with its subsidiaries, the “Company” or “Greenestone”):

 

(a) restates its Consolidated Balance Sheets as of December 31, 2013 and 2012 and the related Consolidated Statements of Operations and Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2013 and 2012;

 

(b) amends its Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) as it relates to the fiscal year ended December 31, 2013;

 

(c) restates its Unaudited Quarterly Financial Data for first three quarters in the year ended December 31, 2013 and the first three quarters in the year ended December 31, 2014.

 

Background on the Restatement 

 

As previously disclosed in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on March 27, 2015 the board of directors of the Company, in performance of its function as the audit committee, and in consultation with management, concluded that, because of errors identified in the Company’s previously issued financial statements for the fiscal years ended December 31, 2013, 2012, 2011 and 2010 and the first three quarters of fiscal 2013, the Company would restate its previously issued financial statements, including the quarterly data for fiscal years 2014, 2013 and 2012.

 

These errors were discovered by management during the Company’s normal closing process, in the course of the Company’s regularly scheduled audit by its newly appointed Independent Public Accountants, and during the course of an internal investigation initiated by the board of directors of the Company (in performance of its function as the audit committee). The Company’s board of directors has completed its investigation. The restatements reflect adjustments to correct errors in the Company’s accounting for certain convertible debt and options and shares issued for services. The effect of the restatements on the Company’s Balance Sheets is not material and the restatements have no effect on reported cash flow from operations.

 

In addition, the Company has restated its consolidated financial statements, to retroactively reflect the Company’s Board of Directors decision to dispose of its Endoscopy Division, as of and for the fiscal years ended December 31, 2013 and December 31, 2012. In addition, the Company has restated its quarterly Consolidated Statements of Operations and Balance Sheets for each of the quarterly periods in fiscal 2013 and for the first three quarters of fiscal 2014,The restated financial statements correct the following errors:

 

Beneficial Conversion Feature

 

During the fourth quarter of fiscal 2014, the Company identified an error as a result of not recognizing the beneficial conversion feature inherent in seventy five (75) mandatorily convertible notes issued between 2010 and 2012 to accredited investors; the beneficial conversion feature inherent in two (2) convertible notes issued to Asher Enterprises, Inc. during the second and third quarter of 2013; and the beneficial conversion feature inherent in five (5) convertible notes issued to JMJ Financial Group during the five quarters beginning with the period ended June 30, 2013 and ending in the period ended September 30, 2014. The cumulative effect of the errors over the restated periods resulted in an increase to pre-tax and after tax expense of approximately $1,627,789 of which $511,073 was attributable to discontinued operations.

 

Shares Issued for Services

 

Management discovered an error in the recording of legal fees satisfied by the issuance of shares during the third quarter of 2013. The effect of this error during the third quarter of 2013 resulted in an increase to pre-tax and after tax expense of approximately $365,850 none of which was attributable to discontinued operations.

 

Employee Option Incentive Grants

 

During the fourth quarter of fiscal 2014, the Company identified an error as a result of not recognizing the costs of employee option incentive granted during the second quarter of 2012 and which terminated during the second quarter of 2014. The cumulative effect of the errors over the restated periods resulted in an increase to pre-tax and after tax expense of approximately $2,810,683 of which none was attributable to discontinued operations.

 

Certain of the adjustments described above, or portions thereof, relate to periods prior to fiscal 2013. The cumulative effect of those restatement adjustments on years prior to fiscal 2013 has been reflected as a $2,219,238 increase in accumulated deficit  as of January 1, 2013 (the beginning of the Company’s 2013 fiscal year).

 

The adjustments made as a result of the restatement are more fully discussed in Note 1, Restatement of Previously Issued Financial Statements, of the Notes to Consolidated Financial Statements included in this Annual Report. To further review the effects of the accounting errors identified and the restatement adjustments, see Part II—Item 7— Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Annual Report. For a description of the control deficiencies identified by management as a result of the investigation and our internal reviews, and management’s plan to remediate those deficiencies, see Part II—Item 9A— Controls and Procedures .

 

Previously filed Annual Reports on Form 10-K and quarterly reports on Form 10-Q for the periods affected by the restatement have not been amended. Accordingly, investors should no longer rely upon the Company’s previously released financial statements for these periods and any earnings releases or other communications relating to these periods. See Note 19, Unaudited Quarterly Financial Data, of the Notes to the Consolidated Financial Statements in this Annual Report for the impact of these adjustments on each of the quarterly periods in fiscal 2013 and for the first three quarters of fiscal 2014. Quarterly reports for fiscal 2015 will include restated results for the corresponding interim periods of fiscal 2014. All amounts in this Annual Report on Form10-K affected by the restatement adjustments reflect such amounts as restated.

 

PART I

 

Item 1. Business.

 

Company History

 

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

 

 

Recent Developments

 

In February 2015, the Company finalized the terms for the acquisition of the property currently leased by the Company. The property, which is the location of GreeneStone's Muskoka addiction treatment center, encompasses 50,000 square feet of buildings on 43 acres and is adjacent to Lake Muskoka in Ontario. The property has 11 separate buildings, including five detox suites, 29 residential suites, staff cottages with 13 individual bedrooms, a self-contained fitness center, kitchen and dining facilities, and several meeting and therapy rooms. Additional facilities include an indoor and outdoor pool, a tennis court, a volleyball court, a running track and nature trails. As of the date of this annual report, the Company is addressing certain due diligence items which have to be cleared up before the parties enter into definitive agreements for the sale of the property to the Company

 

The purchase price for the property is CAD$10,000,000.00 and is being funded by a Vendor Take-Back mortgage of CAD$5,000,000.00 at 8.4% and the issuance of two million shares of Series A Preferred Stock (the "Preferred Stock") which is convertible into 50,000,000 shares of common stock. Using the current foreign exchange rate, the effective valuation of the equity is approximately US$4,000,000, or US$0.08 per share (which is twice the closing price of the Company's common stock on January 30, 2015). The Company expects this deal to close by the fourth quarter of this year.

 

The Company will seek to replace the Vendor Take-Back mortgage as soon as possible with a lower-rate commercial mortgage and potentially increase the amount of the mortgage in order to provide extra cash for the Company. Any increase in the $5,000,000.00 collateral against the Real Estate will be subject to approval from the Preferred Stockholder anytime while shares of the Preferred Stock are outstanding.

 

The Company announced in 2013 that it entered into an LOI to purchase the property and the final terms are similar to what was contained in that LOI. Cranberry Cove Holdings Ltd. ("CCH") is the owner of the property and will be the recipient of the Preferred Stock. CCH is owned by the Company's current CEO. The purchase price is based on a bona fide appraisal.

 

Change in Operations

 

On April 1, 2010, the Company, pursuant to Board of Directors resolution, changed its principal operations from development stage electronics to healthcare services. On March 29, 2010, the Company entered into a one-year consulting agreement with Greenestone Clinic Inc., a Canadian corporation (“Greenestone Clinic”), whereby Greenestone Clinic was to provide consulting services for the Company’s development and operation of medical clinics in the province of Ontario, Canada. Specifically, Greenestone would provide medical and business expertise in the initial startup of private clinics and technical assistance to ensure the clinics complied with governmental policy and procedure requirements as well as any operational requirements. At the time of this consulting agreement, Greenestone Clinic operated a clinic at the Muskoka property now housing its addiction treatment clinic and provided endoscopy services the Company planned to offer in its first Ontario medical clinic.

 

On May 15, 2010, the Company secured, through its wholly-owned subsidiary, 1816191 Ontario Ltd. (“1816191”), a sublease of space (which was previously the Rothbart Pain Clinic) of approximately 8,000 sq. ft. to be used as the Company’s executive offices and to run its first endoscopy clinic. The Company started offering medical services in June 2010, offering various medical services, including endoscopy, cardiology and executive medicals.

 

In March 2011, Greenestone Clinic, a former Company consultant, gave up the premises in Bala, Ontario, previously leased by Greenestone Clinic and operated as a private medical resort and also allowed the Company to do business using the “GreeneStone” name. The Company, through its wholly-owned subsidiary GreeneStone Clinic Muskoka Inc. (“GreeneStone Muskoka”) entered into a lease with the owner of the Muskoka premises on April 1, 2011. The Company planned to offer only mental health and addiction treatment services in this location which would be run as an in-patient addiction treatment center.

 

 

On December 17, 2014, the Company completed the sale of all of the outstanding shares of 1816191, for the sum of C$1,282,001.87, comprised of the agreed purchase price of C$1,250,000 and the acquisition of net assets at closing of C$32,001.87. The sale was made pursuant to that Share Purchase Agreement, dated as of October 6, 2014, by and between the Company and Jaintheelal Parekh Medicine Professional Corporation (“Jaintheelal”). The Company and Jaintheelal entered into a revised Share Purchase Agreement on December 16, 2014.

 

Jaintheelal is owned by Dr. Jay Parekh, the Company’s former Medical director in charge of Endoscopy. The sale price of C$1,282,001.87 included the assumption by Jaintheelal of debt in the same amount as the sale price, which debt is owed by 1816191 to the Company in the amount of C$895,495.60 and to Jaintheelal of C$386,542.27. At closing, Jaintheelal offset the assumed debt to the registrant of C$895,495.60 by US$277,500.00 through the cancellation of two million four hundred and eight thousand two hundred and sixty-eight shares of the Company’s common stock, for a net amount due to the Company of US$493,807. The remainder of the assumed debt owed by 1816191 to the Company is due June 30, 2015 and is in the form of an interest-bearing note. After the sale of 1816191, the Company’s principal operations are in the addiction treatment business.

 

The sale, to a related party, was recorded as a $1,104,304 addition to APIC, and a reduction of $90,304 to Comprehensive (Loss) Income.

 

Corporate Structure

 

After the sale of 1816191, the Company has one operating subsidiary, GreeneStone Muskoka, which is 100% wholly-owned.

 

GreeneStone Muskoka Treatment Center

 

On February 1, 2011, Dr. Paul Garfinkel was retained on a six month consulting contract to advise the Company on its plan to go into the addiction treatment business. Dr. Garfinkel formed a clinical advisory group consisting of himself and Dr. Clive Chamberlain, Dr. Greg O’Donahue and Janice Harris R.N. The clinical advisory group (the “CAG”) was to create the mission and values for the addiction treatment business and locate and hire a leader for the addiction treatment business.

 

On April 1, 2011, the Company through GreeneStone Muskoka, entered into a new lease (the “Bala Lease”) with the Cranberry Cove Holdings Ltd. (“Cranberry”), the owner of the Bala, Ontario property (the “Bala Property”) in order to operate a mental health and addiction treatment center at the property. On April 1, 2011 (the “Purchase Date”), GreeneStone Muskoka purchased all of the assets of Greenestone Clinic that were previously used for the operation of the executive medical center located at the Bala Property. This essentially gave GreeneStone Muskoka a turn-key opportunity to start up its addiction treatment business (the “GreeneStone Muskoka Treatment Center”).

 

On April 1, 2011, Dr. Susan K. Blank was hired on a one year contract to run the GreeneStone Muskoka Treatment Center. Dr. Blank worked with the CAG to refine the mission and values for the GreeneStone Muskoka Treatment Center and worked together on the policies and procedures for the operation of the treatment center.

 

In August 2011, the GreeneStone Muskoka Treatment Center began providing addiction treatment services and took its first paying clients. The GreeneStone Muskoka Treatment Center offers clients a 45-day program that costs between $27,000 and $37,000 for the stay. Treatment is individualized and after the first two weeks of treatment, the client is assessed and extended treatment is often recommended. The treatment offered is concurrent and the addiction and co-occurring mental health disorders are treated at the same time. The center has a 36 bed capacity and can easily be expanded beyond that capacity. Treatment consists of group and individual therapy, as well as recreation therapy. Clients are taught about nutrition and have excellent food while in treatment.

 

In November of 2011, the CAG was disbanded after achieving their goals. In March 2012, Dr. Blank and two contract therapists, all of whom were from the United States, were replaced by a more permanent team of doctors and therapists from Canada.

 

Toronto Aftercare and Intensive Out-Patient Addiction Treatment Program

 

In March 2012, the Company entered into a lease for premises at 39 Hazelton Avenue in Toronto, Ontario for the operation of an aftercare and intensive out-patient addiction treatment program. The Company, through its subsidiary GreeneStone Muskoka, hired addiction therapist Andrew Galloway on April 1, 2012, to run the outpatient operation (“Greenestone Yorkville”). This operation provides follow up and aftercare services for clients of the GreeneStone Muskoka Treatment Center, as well as clients that have been to other treatment centers. Clients attend these services twice per week and are billed monthly. Greenestone Yorkville also offers one-on-one counseling for clients that have not been to treatment centers and those that have. The outpatient program for this center is designed for those clients that are able to maintain sobriety while still living at home. The company moved from Hazelton Avenue to Pleasant Boulevard in early 2013, with the same services being offered. The company sold the aftercare program on May 1, 2014 to focus on its addiction treatment.

 

Employees

 

As of December 31, 2014, GreeneStone Healthcare Corporation had no employees and its subsidiary GreeneStone Clinic Muskoka had approximately 28 employees.

 

Marketing

 

In 2014, the Company has implemented a formal marketing plan for its addiction treatment business.

 

The addiction treatment business operates as a private pay service. The customers get no government or OHIP subsidy to come to our treatment facility. The individual makes the decision and so it is important to market to the individual. There are a large number of mental health professionals that refer to the treatment center and it is important to maintain contact with and market to these professionals. This is the same type of long process of establishing relationships with these professionals and our treatment staff. This can be done at conferences and functions where the treatment professionals come together and make individual contact between professionals.

 

The treatment business gets about 70% of its clients via the Internet. This was the single biggest focus for the marketing team in 2014 and continues into 2015. Search Engine Optimization (SEO) is very important and the Company aggressively seeks the maximum cost/benefit relationships with specialist firms that can help in this effort. We believe our efforts in 2014 were successful and effective using this model. We do not believe that it is cost effective to market through traditional channels such as TV, radio or print advertising at this time.

 

Competition

 

The private pay addiction treatment business is not well established in Canada and there are only a handful of competitors that provide these services. Two of the biggest providers are also government hospital licensed facilities, that do both OHIP insured services and privately paid services. Most hospitals have a mental health unit that can handle detoxification, but do not provide addiction treatment programs. There is only one large competitor that is very similar to GreeneStone Muskoka and they are on the west coast of Canada. There are hundreds of private paid facilities in the United States and they would be the major competitor for those with the highest ability to pay for service. Service in the United States that offer the same level of treatment that is offered by the Company is generally 50% to 100% more expensive. We believe that travel to the United States by those with potential travel restrictions as well as a higher cost will eliminate many U.S. facilities as competition.

 

Environmental Regulations

 

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

 

Item 1A. Risk Factors.

 

Not applicable because we are a smaller reporting company.

 

Item 1B. Unresolved Staff Comments.

 

Not applicable.

 

Item 2. Properties.

 

Greenestone Executive Offices and Endoscopy Unit

 

The Company’s executive offices are located at 5734 Yonge Street, Suite 300, Toronto, Ontario, Canada M2M 4E7. The space is approximately 8,000 sq. ft. and takes up the entire third floor of the building (the “Yonge Street Facility”). This facility was leased by 1816191 and the primary activity at this facility was endoscopy procedures. Jaintheelal is now the primary lessee at the property. The Company and Jaintheelal share lease payments and the lease expires on July 31, 2018.

 

Greenestone Muskoka Treatment Facility

 

The Company’s executive offices are located at 5734 Yonge Street, Suite 300, Toronto, Ontario, Canada M2M 4E7. The space is approximately 8,000 sq. ft. and takes up the entire third floor of the building (the “Yonge Street Facility”). This facility was leased by 1816191 and the primary activity at this facility was endoscopy procedures. The Company entered into a sublease for office space at these premises from 1816191 on a month to month basis while it looks for a new space for its corporate head office.

 

Greenestone Muskoka Treatment Facility

 

The Bala Facility is in Bala, Ontario at 3571 Highway 169. The property is 43 acres in size and contains approximately 48,000 square feet of buildings. The property is leased from Cranberry and the term of the lease is for five years commencing April 1, 2014 and has an option to extend for an additional three years. Further, the Company has an option to purchase the property at any time during the term of the lease for $9.0 million dollars and a right of first refusal in the event of a sale to a third party.

 

Toronto Aftercare and Addiction Treatment Program

 

The Company entered into a 5 year lease commencing July 1, 2013 at 39 Pleasant Boulevard in Toronto, this space housed the aftercare addiction treatment business, which was previously at Yorkville location. The lease for this location was transferred

 

Item 3. Legal Proceedings.

 

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

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

PART II

 

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

 

(a) Market Information

 

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

 

The following table sets forth the range of high and low bid quotations for our common stock for each of the periods indicated as reported by the OTCBB. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 

Period Ending December 31, 2014 

Quarter Ended  High $  Low $
       
 March 31    0.31    0.11 
             
 June 30    0.16    0.05 
             
 September 30    0.15    0.05 
             
 December 31    0.13    0.05 

 

Period Ending December 31, 2013 

Quarter Ended  High $  Low $
       
 March 31    0.50    0.12 
             
 June 30    0.33    0.10 
             
 September 30    0.15    0.02 
             
 December 31    0.32    0.06 

Quotations on the OTCBB reflect bid and ask quotations, may reflect inter-dealer prices, without retail markup, markdown or commission and may not represent actual transactions.

 

(b) Holders

 

The number of record holders of the Company’s common stock as of April 10, 2015, was approximately 142.

 

(c) Dividends

 

We have never paid any cash dividends on our common shares, and we do not anticipate that we will pay any dividends with respect to those securities in the foreseeable future. Our current business plan is to retain any future earnings to finance the expansion development of our business.

 

(d) Securities Authorized for Issuance Under Equity Compensation Plans

 

As of December 31, 2014, no securities were authorized for issuance under the Company’s 2013 Stock Option Plan (which was previously approved by security holders).

 

Recent Sales of Unregistered Securities

 

In the securities transactions described below, shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(a)(2) promulgated thereunder due to the fact that the issuance did not involve a public offering because of the insubstantial number of persons involved in each offering, the size of the offering, manner of the offering and number of shares offered. Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(a) (2) of the Securities Act for this transaction..

 

The following summaries are the securities transactions during the three year period ended December 31, 2014:

 

On January 7, 2014, the Company issued 65,573 shares of the Company’s common stock to Mark Vinderine upon conversion of CAN$ 10,000 of an outstanding convertible promissory note at a conversion price of US$0.15 per share.

 

On January 15, 2014, the Company issued 539,000 shares of the Company’s common stock to RTW Capital Corporation upon conversion of CAN$ 53,900 of an outstanding convertible promissory note at a conversion price of US$0.10 per share.

 

On January 17, 2014, the Company issued 32,450 shares of the Company’s common stock to Mary Ann Kane upon conversion of CAN$ 5,000 of an outstanding convertible promissory note at a conversion price of US$0.15 per share.

 

On January 17, 2014 the company entered into a share purchase agreement with Irwin Zalcberg for the purchase of 2,300,000 units at a price of 8.5 cents per unit. A unit consisted of 1 share and 1 warrant to purchase one common share at US$0.15 per share exercisable for three years from January 17, 2014.

 

On January 17, 2014 the company entered into a share purchase agreement with KVM Capital for the purchase of 500,000 units at a price of 8.5 cents per unit. A unit consisted of 1 share and 1 warrant to purchase one common share at US$0.15 per share exercisable for three years from January 17, 2014.

 

On January 17, 2014 the company entered into a share purchase agreement with Kirk Moulton and Valorrie Moulton for the purchase of 250,000 units at a price of 8.5 cents per unit. A unit consisted of 1 share and 1 warrant to purchase one common share at US$0.15 per share exercisable for three years from January 17, 2014.

 

On January 17, 2014 the company entered into a share purchase agreement with Eileen Greene for the purchase of 1,150,000 units at a price of 8.5 cents per unit. A unit consisted of 1 share and 1 warrant to purchase one common share at US$0.15 per share exercisable for three years from January 17, 2014.

 

On January 17, 2014 the company entered into a share purchase agreement with Rebuen Taub for the purchase of 300,000 units at a price of 8.5 cents per unit. A unit consisted of 1 share and 1 warrant to purchase one common share at US$0.15 per share exercisable for three years from January 17, 2014.

 

On January 21, 2014, the Company issued 66,667 shares of the Company’s common stock to Shirley Siegel upon conversion of CAN$ 10,000 of an outstanding convertible promissory note at a conversion price of US$0.15 per share.

 

On February 6, 2014, the Company issued 500,000 shares of the Company’s common stock to KVM Capital Corporation as part of a purchase of 500,000 units for an aggregate purchase price of $42,500, with each unit consisting of a share of common stock and a warrant to purchase a share of common stock

 

On February 12, 2014, the Company issued 64,901 shares of the Company’s common stock to Sandra Edwards upon conversion of CAN$ 10,000 of an outstanding convertible promissory note at a conversion price of US$0.15 per share.

 

On February 12, 2014, the Company issued 58,411 shares of the Company’s common stock to Yaacov Michael Markus upon conversion of CAN$ 9,000 of an outstanding convertible promissory note at a conversion price of US$0.15 per share.

 

On February 12, 2014, the Company issued 106,266 shares of the Company’s common stock to Pradeep Sood upon conversion of CAN$ 10,599 of an outstanding convertible promissory note at a conversion price of US$0.10 per share.

 

On February 25, 2014, the Company issued 503,200 shares of the Company’s common stock to Solomon Mathalon upon conversion of CAN$ 50,000 of an outstanding convertible promissory note at a conversion price of US$0.10 per share.

 

On February 26, 2014, the Company issued 47,010 shares of the Company’s common stock to Robert Charlton upon conversion of CAN$ 10,000 of an outstanding convertible promissory note at a conversion price of US$0.20 per share.

 

On April 14, 2014, the Company issued 32,450 shares of the Company’s common stock to Minh Phan upon conversion of CAN$ 5,000 of an outstanding convertible promissory note at a conversion price of US$0.15 per share.

 

On April 14, 2014, the Company issued 251,093 shares of the Company’s common stock to Sound Capital Inc. upon conversion of CAN$ 40,000 of an outstanding convertible promissory note at a conversion price of US$0.15 per share.

 

On April 17, 2014, the Company issued 1,150,000 shares of the companys common stock to Eileen Greene as part of a purchase of 1,150,000 units for an aggregate purchase price of $97,500, with each unit consisting of a share of common stock and a warrant to purchase a share of common stock.

 

On April 17, 2014, the Company issued 750,000 shares of the companys common stock to Kirk Moulton and Valerie Moulton JTWROS as part of a purchase of 750,000 units for an aggregate purchase price of $63,750 with each unit consisting of a share of common stock and a warrant to purchase a share of common stock.

 

On May 6, 2014, the Company issued an aggregate of 1,892,732 shares of common stock to various employees of the Company for the conversion of principal amount of $105,038 of convertible notes held by such employees.

 

On June 2, 2014, the Company issued 667,820 shares of common stock to Cede & Co., which shares represents (i) 479,500 shares of common stock issued upon the conversion of a note by Michael Flanagan in the principal amount of CAN$ 50,000 at a conversion price of US$0.10 which shares Mr. Flanagan assigned to Ravi Murugan and (ii) 188,320 shares issued upon the conversion of a note by Michael Flanagan in the principal amount of $70,000 at a conversion price of US$0.15 (of which 251,093 was assigned to Sound Capital Inc.).

 

On June 5, 2014, the Company issued 919,107 shares of common stock to Cede & Co, which shares represent the conversion of a note by Edward Blasiak in the principal amount of CAN$145,000 at a conversion price of US$0.15 which shares Mr. Blasiak assigned to Joshua Bauman.

 

On August 30, 2014 the Company issued 60,747 shares of common stock to Robert Melo and 60,747 shares of common stock to Stephen Munro who each converted promissory notes in the principal amount of CAN$ 10,000 at a conversion price of $0.15.

 

During the year ended December 31, 2014, the Company issued 2,245,991 shares of common stock for the conversion of $127,076 in principal amount of convertible notes held by JMJ Financial at various conversion prices ranging from $0.0385 to $0.077

 

On May 13, 2013 the company entered into a promissory note with JMJ Financial where the company received $75,000. If the note was not repaid within 180 days JMJ Financial could convert into company shares the principal amount plus interest based on a formula of the lower of 30 cents or 70% of the lowest trade price in the 25 trading days previous to conversionIn November and December 2013 JMJ converted $28,792 of this note to receive 800,000 shares.

 

On April 2, 2013, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc., a Delaware corporation (“Asher”) whereby the Company entered into a Convertible Note with Asher. The Note has since been fully paid and the Securities Purchase Agreement terminated and the Convertible Note cancelled.

 

On July 25, 2013 the Company entered into another Securities Purchase Agreement with Asher which also contained a Convertible Note for $63,000 bearing an interest rate of 8% and is due and payable on April 15, 2014, with the option to prepay. After 180 days from the issuance of the Convertible Note, the principal balance is convertible into shares of the Company’s common stock. The conversion price is equal to the Market Price of the Company’s common stock as defined in the Convertible Note multiplied by 61%. The Note has since been fully paid and the Securities Purchase Agreement terminated and the Convertible Note cancelled.

 

On December 24, 2013 the company entered into a share purchase agreement with Kirk Moulton and Valerie Moulton for the purchase of 500,000 units at a price of 8.5 cents per unit. A unit consisted of 1 share and 1 warrant to purchase one common share at US$0.15 per share exercisable for three years from December 19, 2013.

 

On December 24, 2013 the company entered into a share purchase agreement with Irwin Zalcberg for the purchase of 1,000,000 units at a price of 8.5 cents per unit. A unit consisted of 1 share and 1 warrant to purchase one common share at US$0.15 per share exercisable for three years from December 19, 2013.

 

On May 31, 2012, the Company issued 2,838,867 shares of the Company’s common stock to Richard Siegal upon conversion of $337,560 worth ($.10 per share) of an outstanding convertible promissory note in the principal amount of $337,560.

  

On May 31, 2012, the Company issued 1,144,600 shares of the Company’s common stock to Shawn Leon upon conversion of $133,860 worth ($.10 per share) of an outstanding convertible promissory note in the principal amount of $133,860.

 

On May 31, 2012, the Company issued 970,000 shares of the Company’s common stock to Brian Medjuck upon conversion of $145,500 worth ($.15 per share) of an outstanding convertible promissory note in the principal amount of $145,500.

 

On May 31, 2012, the Company issued 155,200 shares of the Company’s common stock to Anita Teslak upon conversion of $15,520 worth ($.10 per share) of an outstanding convertible promissory note in the principal amount of $15,520.

 

On May 31, 2012, the Company issued 87,300 shares of the Company’s common stock to Greenestone Clinic Inc. upon conversion of $8,730 worth ($.10 per share) of an outstanding convertible promissory note in the principal amount of $8,730.

 

On May 31, 2012, the Company issued 900,000 shares of the Company’s common stock to Garry Scott upon conversion of $9,000 worth ($.01 per share) of an outstanding convertible promissory note in the principal amount of $9,000.

 

On May 31, 2012, the Company issued 50,000 shares of the Company’s common stock to Davis Family Investments Corp upon conversion of $500 worth ($.01 per share) of an outstanding convertible promissory note in the principal amount of $500.

 

On May 31, 2012, the Company issued 1,000,000 shares of the Company’s common stock to Joshua Bauman upon conversion of $10,000 worth ($.01 per share) of an outstanding convertible promissory note in the principal amount of $10,000.

 

On May 31, 2012, the Company issued 100,000 shares of the Company’s common stock to Ernie Bauman upon conversion of $1,000 worth ($.01 per share) of an outstanding convertible promissory note in the principal amount of $1,000.

On May 31, 2012, the Company issued 1,000,000 shares of the Company’s common stock to Harold Barting upon conversion of $10,000 worth ($.01 per share) of an outstanding convertible promissory note in the principal amount of $10,000.

  

On May 31, 2012, the Company issued 1,000,000 shares of the Company’s common stock to Silverwood Energy Ltd. upon conversion of $10,000 worth ($.01 per share) of an outstanding convertible promissory note in the principal amount of $10,000.

 

 

On May 31, 2012, the Company issued 1,000,000 shares of the Company’s common stock to Majenta Energy Ltd. upon conversion of $10,000 worth ($.01 per share) of an outstanding convertible promissory note in the principal amount of $10,000.

 

On November 11, 2012, the Company issued 250,900 shares of the Company’s common stock to RTW Capital Corporation upon conversion of $25,090 worth ($.10 per share) of an outstanding convertible promissory note in the principal amount of $25,090.

 

On November 11, 2012, the Company issued 133,333 shares of the Company’s common stock to Michael Perelgut upon conversion of $20,000 worth ($.15 per share) of an outstanding convertible promissory note in the principal amount of $20,000.

 

On November 11, 2012, the Company issued 254,175 shares of the Company’s common stock to Margot Marshall upon conversion of $25,418 worth ($.10 per share) of an outstanding convertible promissory note in the principal amount of $25,418.

 

On November 11, 2012, the Company issued 359,590 shares of the Company’s common stock to James Schacter upon conversion of $53,939 worth ($.15 per share) of an outstanding convertible promissory note in the principal amount of $53,939.

 

On December 1, 2012, the Company issued 100,640 shares of the Company’s common stock to Bram Atlin upon conversion of $10,064 worth ($.10 per share) of an outstanding convertible promissory note in the principal amount of $10,064.

 

On December 1, 2012, the Company issued 251,600 shares of the Company’s common stock to Beverly Chapin-Hill upon conversion of $25,160 worth ($.10 per share) of an outstanding convertible promissory note in the principal amount of $25,160.

 

On December 1, 2012, the Company issued 251,600 shares of the Company’s common stock to Ed Blasiak upon conversion of $25,160 worth ($.10 per share) of an outstanding convertible promissory note in the principal amount of $25,160.

  

On December 1, 2012, the Company issued 503,200 shares of the Company’s common stock to Jay Parekh upon conversion of $50,320 worth ($.10 per share) of an outstanding convertible promissory note in the principal amount of $50,320.

 

On December 1, 2012, the Company issued 100,640 shares of the Company’s common stock to M Prabkhar Medicine Professional Corp. upon conversion of $10,064 worth ($.10 per share) of an outstanding convertible promissory note in the principal amount of $10,064.

 

On December 1, 2012, the Company issued 251,600 shares of the Company’s common stock to Sohail Iqbal upon conversion of $25,160 worth ($.10 per share) of an outstanding convertible promissory note in the principal amount of $25,160.

 

On December 1, 2012, the Company issued 503,200 shares of the Company’s common stock to Solomon Mathelon upon conversion of $50,320 worth ($.10 per share) of an outstanding convertible promissory note in the principal amount of $50,320.

 

On December 1, 2012, the Company issued 250,000 shares of the Company’s common stock to Dragon Alternative Fund upon conversion of $25,000 worth ($.10 per share) of an outstanding convertible promissory note in the principal amount of $25,000.

 

On December 1, 2012, the Company issued 100,266 shares of the Company’s common stock to A. Sood upon conversion of $10,627 worth ($.10 per share) of an outstanding convertible promissory note in the principal amount of $10,627.

 

Penny Stock

 

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

 

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

 

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

 

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

 

Item 6. Selected Financial Data.

 

Not applicable because we are a smaller reporting company.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview of Restatement

 

In this Annual Report on Form 10-K, GreeneStone Healthcare Corporation (together with its subsidiaries, the “Company” or “Greenestone”):

 

(a) restates its Consolidated Balance Sheets as of December 31, 2013 and 2012 and the related Consolidated Statements of Operations and Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2013 and 2012;

 

(b) amends its Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) as it relates to the fiscal year ended December 31, 2013;

 

(c) restates its Unaudited Quarterly Financial Data for each quarter in the year ended December 31, 2013 and the first three fiscal quarters in the year ended December 31, 2014.

 

Background on the Restatement

 

As previously disclosed in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on March 27, 2015 the board of directors of the Company, in performance of its function as the audit committee and in consultation with management, concluded that, because of errors identified in the Company’s previously issued financial statements for the fiscal years ended December 31, 2013, 2012, 2011 and 2010 and the first three quarters of fiscal 2013, the Company would restate its previously issued financial statements, including the quarterly data for fiscal years 2014, 2013 and 2012.

 

These errors were discovered by management during the Company’s normal closing process, in the course of the Company’s regularly scheduled audit by its newly appointed Independent Public Accountants, and during the course of an internal investigation initiated by the board of directors of the Company (in performance of its function as the audit committee). The Company’s board of directors has completed its investigation. The restatements reflect adjustments to correct errors in the Company’s accounting for certain convertible debt and options and shares issued for services. The effect of the restatements on the Company’s Balance Sheets is not material and the restatements have no effect on reported cash flow from operations.

 

In addition, the Company has restated its consolidated financial statements, to retroactively reflect the Company’s Board of Directors decision to dispose of its Endoscopy Division, as of and for the fiscal years ended December 31, 2013 and December 31, 2012. In addition, the Company has restated its quarterly Consolidated Statements of Operations and Balance Sheets for each of the quarterly periods in fiscal 2013 and for the first three quarters of fiscal 2014. The restated financial statements correct the following errors:

 

Beneficial Conversion Feature

 

During the fourth quarter of fiscal 2014, the Company identified an error as a result of not recognizing the beneficial conversion feature inherent in seventy five (75) mandatorily convertible notes issued between 2010 and 2012 to accredited investors; the beneficial conversion feature inherent in two (2) convertible notes issued to Asher Enterprises, Inc., during the second and third quarter of 2013; and the beneficial conversion feature inherent in five (5) convertible notes issued to JMJ Financial Group, during the five quarters beginning with the period ended June 30, 2013 and ending in the period ended September 30, 2014. The cumulative effect of the errors over the restated periods resulted in an increase to pre-tax and after tax expense of approximately $1,627,789 of which $511,073 was attributable to discontinued operations.

 

Shares Issued for Services

 

Management discovered an error in the recording of legal fees satisfied by the issuance of shares during the third quarter of 2013. The effect of this error during the third quarter of 2013 resulted in an increase to pre-tax and after tax expense of approximately $365,850 none of which was attributable to discontinued operations.

 

Employee Option Incentive Grants

 

During the fourth quarter of fiscal 2014, the Company identified an error as a result of not recognizing the costs of employee option incentive granted during the second quarter of 2012 and which terminated during the second quarter of 2014. The cumulative effect of the errors over the restated periods resulted in an increase to pre-tax and after tax expense of approximately $2,810,683 of which none was attributable to discontinued operations.

 

Certain of the adjustments described above, or portions thereof, relate to periods prior to fiscal 2013. The cumulative effect of those restatement adjustments on years prior to fiscal 2013 has been reflected as a $2,219,238 increase in accumulated deficit as of January 1, 2013 (the beginning of the Company’s 2013 fiscal year).

 

The adjustments made as a result of the restatement are more fully discussed in Note 1, Restatement of Previously Issued Financial Statements, of the Notes to Consolidated Financial Statements included in this Annual Report. To further review the effects of the accounting errors identified and the restatement adjustments, see Part II—Item 7— Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Annual Report. For a description of the control deficiencies identified by management as a result of the investigation and our internal reviews, and management’s plan to remediate those deficiencies, see Part II—Item 9A— Controls and Procedures.

 

Previously filed Annual Reports on Form 10-K and quarterly reports on Form 10-Q for the periods affected by the restatement have not been amended. Accordingly, investors should no longer rely upon the Company’s previously released financial statements for these periods and any earnings releases or other communications relating to these periods. See the Unaudited Schedule to Financial Statements, Unaudited Quarterly Financial Data, in this Annual Report for the impact of these adjustments on each of the quarterly periods in fiscal 2013 and for the first three quarters of fiscal 2014. Quarterly reports for fiscal 2015 will include restated results for the corresponding interim periods of fiscal 2014. All amounts in this Annual Report on Form10-K affected by the restatement adjustments reflect such amounts as restated.

 

You should read the following discussion and analysis in conjunction with our consolidated financial statements and related notes included elsewhere in this report.

 

Forward-Looking Statements

 

This annual report on Form 10-K and other reports filed by Greenestone Healthcare Corp. (“we,” “us,” “our,” or the “Company”) from time to time with the SEC contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

 

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

 

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates. This discussion and analysis should be read in conjunction with the Company’s financial statements and accompanying notes to the financial statements for the year ended December 31, 2014.

 

Plan of Operation

 

During the next twelve months, the Company plans to continue its operations as a provider of addiction and after-care treatment services. The Company sold its endoscopy business and other specialized medical procedures at its various locations. The Company plans to focus on the growth of its addiction and aftercare treatment units while simultaneously paring costs in operations.

 

The Company finalized the terms for the acquisition of the property currently leased by the Company. The property, which is the location of GreeneStone's Muskoka addiction treatment center, encompasses 50,000 square feet of buildings on 43 acres and is adjacent to Lake Muskoka in Ontario. The Company expects this deal to close by the fourth quarter of this year.

 

The Company plans to expand its addiction treatment business with acquisitions. In 2014, the Company entered into a non-binding letter of intent with Venture Academy to acquire teen addition treatment centers in Ontario and British Columbia. The Company will need to raise additional capital for this acquisition, which would require the sale of its equity and/or debt securities and securing bank financing.

 

Results of Operations

 

For the Fiscal Year Ended December 31, 2014, Compared to the Fiscal Year Ended December 31, 2013 Revenue

 

During the year ended December 31, 2014, revenues decreased to $US3,416,342 from $US3,685,727 during the year ended December 31, 2013, a decrease of $US269,385. We operate in Canada with a functional currency of Canadian Dollars. Our revenue in Canadian Dollars increased to $Can3,963,274 from $Can3,732,062 an increase in revenues year over year of $Can 231,212. Thus the decrease in reported earnings is entirely attributable to the fall in the Canadian Dollar relative to the United States Dollar. The Company believes that revenue will continue to grow steadily and the Company will become more profitable as most of its costs, such as rent and salaries and wages are relatively fixed, and therefore will reduce as a percentage as business volume grows.

 

Operating Expenses

 

Operating expenses for the year ended December 31, 2014, were $ 4,757,851, compared to $6,387,821 for the year ended December 31, 2013, a decrease of $ 1,629,970. The change in foreign exchange translation rates for the $Can to $US to $0.9051 at December 31, 2014 from $0.9709 at December 31, 2013 accounted for $278,532 of the reported improvement. The non-currency decrease in expenses is primarily attributable to reduction in professional fees, rent, management fees and salaries. As well we incurred higher salaries and management fees. Total operating expenses for the year ended December 31, 2014, primarily consisted of salaries and wages to medical support staff of $2,928,022; rent payments of $ 412,488; professional fees of $308,349; management fees of $122,271; and general and administrative expenses of $875,603.

 

Operating loss

 

During the year ended December 31, 2014, the operating loss decreased to $1,341,509 from $2,702,094 during the year ended December 31, 2013, a decrease of $1,360,585. This decrease is attributable to the salaries and professional fees mentioned above.

 

Interest expense

 

During the year ended December 31, 2014, interest expense decreased to $310,583 from $575,348 during the year ended December 31, 2013, a decrease of $264,765. This decrease is due to a reduction in convertible notes outstanding offset by an increase in interest expense attributable to increased interest expense incurred on short-term debt and interest on payroll and Harmonized Sales Tax (“HST”), and accruals for income tax penalties.

 

Contingency related to outstanding payroll tax liabilities:

 

The Company is delinquent in filing its payroll tax returns resulting in taxes, interest and penalties payable at December 31, 2014 and 2013. As of December 31, 2014 and 2013 as part of Taxes Payable, the Company has payroll tax liabilities of approximately $2,065,000 and $1,778,000, respectively due to various taxing authorities on the consolidated balance sheets. If the Company does not satisfy these liabilities, the taxing authorities may place liens on its bank accounts which would have a negative impact on its ability to operate. Further, the actual liability may be higher due to interest or penalties assessed by same taxing authorities.

 

Net loss from discontinued operations

 

During the year ended December 31, 2014, we owned and operated our former Endoscopy Division, the net loss from discontinued operations (which includes the nine and one half months to date of sale) decreased to $248,181 from $250,131 during the twelve months ended December 31, 2013, a decrease of $1,950. This decrease is attributable to the reduced period of operations during 2014, offset by a decrease in revenues during fiscal 2013 when our costs remained relatively constant year over year.

 

Net Loss

 

During the year ended December 31, 2014, the net loss applicable to common shareholders decreased to $1,900,273 from $3,527,573 during the year ended December 31, 2013, a decrease of $1,627,300. This increase is attributable to the salaries and professional fees mentioned above, partially offset by the reduction in the loss from discontinued operations also referred to above.

 

Liquidity and Capital Resources

 

The following table summarizes working capital at December 31, 2014, compared to December 31, 2013 (as restated).

   December 31, 2014  December 31, 2013
(As Restated)
  Increase /
(Decrease)
Current Assets  $793,058   $563,320   $229,738 
Current Liabilities  $3,847,826   $4,235,348   $(387,522)
Working Capital (Deficit)  $(3,054,768)  $(3,672,028)  $617,260 

 

Over the next twelve months we believe that the company requires $3.5M to cover working capital deficit and properly market and promote the company. If the proposed merger does not go through the company will 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. In the opinion of management, the Company’s liquidity risk is assessed as high and remains unchanged from the prior year.

 

For the Fiscal Year Ended December 31, 2013 [Restated – see explanation at top of section], Compared to the Fiscal Year Ended December 31, 2012 [Restated – see explanation at top of section]

 

Revenue

 

During the year ended December 31, 2013, revenues increased to $3,685,727 from $3,666,804 during the year ended December 31, 2012, an increase of $18,923. This increase is mainly attributable to a steady increase in business volume since the Company began operations. The Company believes that revenue will continue to grow steadily and the Company will become more profitable as most of its costs, such as rent and salaries and wages are relatively fixed, and therefore will reduce as a percentage as business volume grows.

 

Operating Expenses

 

Operating expenses for the year ended December 31, 2013, were $6,387,821, compared to $5,392,350 for the year ended December 31, 2012, an increase of $ 995,471. The increase in expenses is primarily attributable to higher professional fees incurred relating to investor relations and the expensing of shares issued to our legal counsel. As well we incurred higher salaries and management fees. Total operating expenses for the year ended December 31, 2013, primarily consisted of salaries and wages to medical support staff of $3,906,805; rent payments of $730,538; professional fees of $747,585; management fees of $194,180; and general and administrative expenses of $501,853.

 

Operating loss

 

During the year ended December 31, 2013, the operating loss increased to $2,702,094 from $1,725,546 during the year ended December 31, 2012, an increase of $976,548. This increase is attributable to the salaries and professional fees mentioned above.

 

Interest expense

 

During the year ended December 31, 2013, interest expense decreased to $575,348 from $652,005 during the year ended December 31, 2012, a decrease of $76,657. This decrease is due to a reduction in convertible notes outstanding offset by an increase in interest expense attributable to increased interest expense incurred on short term debt and interest on payroll and HST.

 

Net loss from discontinued operations

 

During the year ended December 31, 2013, the net loss from discontinued operations decreased to $250,131 from $659,035 during the year ended December 31, 2012, a decrease of $408,904. This decrease is attributable to increased revenues during fiscal 2013 when our costs remained relatively constant year over year.

 

Net Loss

 

During the year ended December 31, 2013, the net loss applicable to common shareholders increased to $ 3,527,573 from $3,036,586 during the year ended December 31, 2012, an increase of $490,987. This increase is attributable to the salaries and professional fees mentioned above, partially offset by the reduction in the loss from discontinued operations also referred to above.

 

Liquidity and Capital Resources

 

The following table summarizes working capital at December 31, 2013, compared to December 31, 2012.

 

   December 31, 2013
( As Restated )
  December 31, 2012
( As Restated )
  Increase /
(Decrease)
Current Assets  $563,320   $507,426   $55,894 
Current Liabilities  $4,235,348   $4,297,451   $(62,103)
Working Capital (Deficit)  $(3,672,028)  $(3,790,025)  $117,997 

 

Over the next twelve months we believe that the company requires $3.5M to cover working capital deficit and properly market and promote the company. If the proposed merger does not go through the company will 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. In the opinion of management, the Company’s liquidity risk is assessed as high and remains unchanged from the prior year.

 

Accounts receivable at December 31, 2013 and December 31, 2012, was $194,503 and $198,914, respectively, representing a decrease of $4,411. The Company is economically dependent on and earns a significant portion of revenues from the Ontario Ministry of Health for its ability to carry out its normal activities. These revenues account for approximately virtually all of the Company’s discontinued operations in the twelve month period ending December 31, 2013.

 

Item 8. Financial Statements and Supplementary Data.

 

GREENESTONE HEALTHCARE CORPORATION

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in $US unless otherwise indicated)

      PAGE   
Report of Independent Registered Certified Public Accounting Firm    19   
Consolidated Balance Sheets - December 31, 2014 and 2013 (as restated)    20   
Consolidated Statements of Operations - For the year ended December 31, 2014 and 2013 (as restated)    21   
Consolidated Statements of Changes in Stockholders’ Deficit from January 1, 2013 (as restated) to December 31, 2014    22   
Consolidated Statements of Cash Flows - For the years ended December 31, 2014 and 2013 (as restated)    23   
Notes to Consolidated Financial Statements    25   
Supplementary Data- Unaudited:      
Unaudited Schedule to Financial Statements – Unaudited Quarterly Financial Data      53   

 

 

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and

Stockholders of GreeneStone Healthcare Corporation

 

We have audited the accompanying consolidated balance sheets of GreeneStone Healthcare Corporation (“the Company”) as of December 31, 2014 and 2013 (as restated) and the related consolidated statements of operations and other comprehensive loss, stockholders’ deficit and cash flows for the years ended December 31, 2014 and 2013 (as restated). These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of GreeneStone Healthcare Corporation at December 31, 2014 and 2013 (as restated) and the results of its operations and its cash flows for the years ended December 31, 2014 and 2013 (as restated) in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has sustained net losses and has a working capital and stockholder’s deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

/s/ RBSM LLP

New York, NY

April 15, 2015

 

 

 

GREENESTONE HEALTHCARE CORPORATION
Consolidated Balance Sheets
   December 31, 2014  December 31, 2013
      (As Restated)
ASSETS          
Current assets          
Cash  $88,152   $—   
Accounts receivable, net   164,832    194,503 
Prepaid expenses   46,267    84,523 
Due on sale of Subsidiary   493,806    —   
Current assets - held for sale   —      284,294 
Total current assets   793,057    563,320 
Cash – Restricted   86,200    94,020 
Fixed assets, net   256,543    283,246 
Long term assets - held for resale   —      252,878 
           
Total assets  $1,135,800   $1,193,464 
           
LIABILITIES AND STOCKHOLDERS' DEFICIT          
Current liabilities          
Bank overdraft  $—     $126,073 
Accounts payable and accrued liabilities   808,971    440,607 
Taxes payable   2,806,297    2,371,919 
Deferred revenue   143,839    107,477 
Convertible notes payable   —      232,353 
Current portion of loan payable   7,625    7,953 
Short Term loan   29,758    44,443 
Related party notes   51,336    205,995 
Current liabilities - held for sale   —      698,528 
Total current liabilities   3,847,826    4,235,348 
Loan payable   18,460    28,452 
Total liabilities   3,866,286    4,263,800 
Stockholders' deficit          
Common stock; $0.01 par value, 500,000,000 shares authorized; 46,134,787 and 41,065,564 shares issued and outstanding at December 31, 2014 and 2013 respectively   461,318    410,656 
Additional paid-in capital   16,129,038    13,920,629 
Accumulated other comprehensive loss   245,187    264,135 
Accumulated deficit   (19,566,029)   (17,665,756)
Total stockholders' deficit   (2,730,486)   (3,070,336)
           
Total liabilities and stockholders' deficit  $1,135,800   $1,193,464 
The accompanying notes are an integral part of the consolidated financial statements

 

 

GREENESTONE HEALTHCARE CORPORATION
Consolidated Statements of Operations

 

  

Year End

December 31, 2014

  Year End December 31, 2013
      (As Restated)
Revenues  $3,416,342   $3,685,727 
Operating expenses          
Depreciation   83,701    114,467 
General and administrative   903,019    501,853 
Management fees   122,271    194,180 
Professional fees   308,349    747,585 
Rent   412,488    730,538 
Salaries and wages   2,928,023    3,906,805 
Supplies        192,393 
Total operating expenses   4,757,851    6,387,821 
           
Operating loss   (1,341,509)   (2,702,094)
           
Other expense          
Interest expense   (310,583)   (575,348)
Net loss from continuing operations   (1,652,092)   (3,277,442)
Loss from discontinued operations, net of tax   (248,181)   (250,131)
Net loss applicable to common shareholders   (1,900,273)   (3,527,573)
Accumulated other comprehensive loss          
Foreign currency translation adjustment   71,356    311,861 
           
Total comprehensive loss  $(1,828,917)  $(3,215,712)
           
Basic and diluted loss per common share- continuing operations  $(0.04)  $(0.10)
           
Basic and diluted loss per common share- discontinued operations  $(0.00)  $(0.01)
           
Basic and diluted loss per common share  $(0.04)  $(0.11)
           
Weighted average outstanding   46,701,090    33,588,851 
           

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

 

GREENESTONE HEALTHCARE CORPORATION
Consolidated Statement of Changes in Stockholders’ Deficit
         Additional Paid  Comprehensive  Accumulated  Total Stockholders’
   Shares  Amount  in Capital  (Loss) Income  Deficit  Deficit
                               
Balances, December 31, 2012, as previously reported   27,234,279   $272,343   $6,642,530   $(47,726)  $(10,303,902)  $(3,436,755)
Correction of prior period errors   —      —      4,059,661    —      (3,834,281)   225,380 
Balances at December 31, 2012, as restated   27,234,279    272,343    10,702,191    (47,726)   (14,138,183)   (3,211,375)
Common stock issued for convertible note   10,031,303    100,313    1,379,652    —      —      1,479,965 
Common stock issued for short term note   800,000    8,000    20,792              28,792 
Shares issued for cash   1,500,000    15,000    112,500              127,500 
Issuance of shares for services   1,500,000    15,000    365,850              380,850 
Stock option compensation             1,249,192              1,249,192 
Beneficial conversion feature of debt issuances             90,452              90,452 
Foreign currency translation   —      —      —      311,861    —      311,861 
Net loss, year ended December 31, 2013   —      —      —      —      (3,527,573)   (3,527,573)
Balance, December 31, 2013   41,065,582    410,656    13,920,629    264,135    (17,665,756)   (3,070,336)
Surrender of shares as part of sale of subsidiary   (2,408,268)   (24,083)   (253,417)             (277,500)
Disposition of subsidiary             1,104,407    (90,304)        1,014,103 
Common stock issued for convertible notes   728,459    7,285    190,445              197,730 
Common stock issued for short term note   2,245,991    22,460    104,616              127,076 
Shares issued for cash   4,500,000    45,000    337,500              382,500 
Stock option compensation             679,858              679,858 
Beneficial conversion feature of debt issuances             45,000              45,000 
Foreign currency translation   —      —      —      71,356    —      71,356 
Net loss, year ended December 31, 2014   —      —      —      —      (1,900,273)   (1,900,273)
Balance, December 31, 2014   46,131,764   $461,318   $16,129,038   $245,187   $(19,566,029)  $(2,730,486)

 

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

 

GREENESTONE HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
   Year End
December 31, 2014
  Year End
December 31, 2013
 Cash flows from operating activities:        (As Restated) 
  Net loss  $(1,900,273)  $(3,277,442)
  Net loss from discontinued operations, net of tax   248,181    (250,131)
  Net loss from continuing operations   (1,652,092)   (3,527,573)
  Adjustments to reconcile net loss to net cash provided by operating activities:          
   Depreciation   83,701    183,260 
   Provision for bad debts   (1,148)   29,511 
   Stock compensation   679,858    1,249,192 
   Stock issued for services       365,850 
   Amortization of beneficial conversion feature   21,650    281,475 
  Changes in operating assets and liabilities          
   Accounts receivable   30,819    (25,100)
   Prepaid expenses   38,256    (40,885)
   Due to related parties   —        
   Accounts payable and accrued liabilities   368,364    (234,832)
   Taxes payable   434,378    1,034,925 
   Deferred revenue   36,364    (108,318)
Net cash provided by (used in) operating activities- continuing operations   40,150    (792,495)
Net cash provided by (used in) operating activities- discontinued operations   531,788    58,271 
 Net cash provided operating activities   571,938    (734,224)
           
 Cash flows from investing activities:          
  Cash paid for purchase of fixed assets   (56,998)   (115,728)
  Net cash used in investing activities   (56,998)   (115,728)
           
 Cash flows from financing activities:          
  Repayment of notes payable   (328)   —   
Replayment for loans payable   (9,992)     
  Changes in restricted cash   7,820    (94,020)
Proceeds from bank overdraft   —      126,073 
  Proceeds from issuance of short term notes   150,000    (53,178)
  Repayment of short term notes      (416,361)
  Proceeds from issuance of related party notes       733,735 
  Repayment of related party notes   (203,541)   (99,834)
  Proceeds from issuance of common stock   382,500    77,155 
Net cash provided by financing activities- continuing operations   326,495    273,570 
Net cash provided by financing activities- discontinued operations   (698,530)   335,324 
  Net cash provided by financing activities   (372,071)   608,894 
Effect of exchange rate on cash   71,356    311,861 
           
 Net increase (decrease) in cash   214,225    70,803 
 Cash, beginning of year   (126,073)   (70,803)
           
 Cash, end of year  $88,152   $—   
 
           
 Supplemental cash flow information:          
  Cash paid for interest  $80,531   $145,523 
           
  Cash paid for income taxes  $—     $—   
 Noncash Transaction:          
  Common stock issued as a result of conversion of convertible notes payable  $197,730   $397,298 
Common Stock issued as a result of conversion of short term notes payable   $127,076   $0 
Common stock surrendered as part of disposition of subsidiary   $277,500   $- 
The accompanying notes are an integral part of the consolidated financial statements    

 

 GREENESTONE HEALTHCARE CORPORATION

 

Notes to Consolidated Financial Statements

 

1. Restatement of Previously Issued Financial Statements

 

The Company has restated its consolidated financial statements as of and for the fiscal years ended December 31, 2013 and December 31, 2012. In addition, the Company has restated its quarterly Consolidated Statements of Operations and Balance Sheets for each of the quarterly periods in fiscal 2013 and for the first three quarters of fiscal 2014, as presented in an unaudited schedule to these financial statements entitled Unaudited Quarterly Financial Data.

 

The restatements reflect adjustments to correct errors identified by management during the Company’s normal closing process, in the course of the Company’s regularly scheduled audit by its newly appointed Independent Accounting Firm, and during the course of an internal investigation initiated by the board of directors of the Company (in performance of its function as the audit committee). The Company’s board of directors has completed its investigation. The effect of the restatements on the Company’s Balance Sheets is not material and the restatements have no effect on reported cash flow from operations.

 

In addition, the Company has restated its consolidated financial statements, to retroactively reflect the Company’s Board of Directors decision to dispose of its Endoscopy Division, as of and for the fiscal years ended December 31, 2013 and December 31, 2012. 

 

Beneficial Conversion Feature

 

During the fourth quarter of fiscal 2014, the Company identified an error as a result of not recognizing the beneficial conversion feature inherent in seventy five (75) mandatorily convertible notes issued between 2010 and 2012 to accredited investors; the beneficial conversion feature inherent in two (2) convertible notes issued to Asher Enterprises, Inc., during the second and third quarter of 2013; and the beneficial conversion feature inherent in five (5) convertible notes issued to JMJ Financial Group, during the five quarters beginning with the period ended June 30, 2013 and ending in the period ended September 30, 2014. The cumulative effect of the errors over the restated periods resulted in an increase to pre-tax and after tax expense of approximately $1,627,789 of which $511,073 was attributable to discontinued operations.

 

Shares Issued for Services

 

Management discovered an error in the recording of legal fees satisfied by the issuance of shares during the third quarter of 2013. The effect of this error during the third quarter of 2013 resulted in an increase to pre-tax and after tax expense of approximately $365,850 none of which was attributable to discontinued operations.

 

Employee Option Incentive Grants

 

During the fourth quarter of fiscal 2014, the Company identified an error as a result of not recognizing the costs of employee option incentive granted during the second quarter of 2012 and which terminated during the second quarter of 2014. The cumulative effect of the errors over the restated periods resulted in an increase to pre-tax and after tax expense of approximately $2,810,683 of which none was attributable to discontinued operations.

 

Certain of the adjustments described above, or portions thereof, relate to periods prior to fiscal 2013. The cumulative effect of those restatement adjustments on years prior to fiscal 2013 has been reflected as a $2,219,238 increase in accumulated deficit as of January 1, 2013 (the beginning of the Company’s 2013 fiscal year).

 

The restated Consolidated Balance Sheet as of December 31, 2013 and the restated Consolidated Statements of Operations and Cash Flows for the year ended December 31, 2013 are presented below:

 

GREENESTONE HEALTHCARE CORPORATION
Consolidated Balance Sheet
December 31, 2013
   As Previously Reported on Form 10-K  Opening Deficit  BCF  Legal Fees  Compensation  As Restated  Reclassify Discontinued Operations  As Restated and Reclassified
ASSETS                                        
CURRENT ASSETS                                        
Cash  $—                         $—     $—     $—   
Accounts receivable   440,918                        440,918    (246,415)   194,503 
Prepaid expenses   109,854                        109,854    (25,331)   84,523 
Inventory   12,548                        12,548    (12,548)   —   
Current assets - held for sale   —                          —      284,294    284,294 
Total current assets   563,320    —      —      —      —      563,320    —      563,320 
                                         
NON CURRENT ASSETS:                                        
Fixed assets   536,124                        536,124    (252,878)   283,246 
Cash – Restricted   94,020                        94,020    —      94,020 
Long term assets - held for resale                                 252,878    252,878 
Total assets  $1,193,464   $—     $—     $—     $—     $1,193,464   $—     $1,193,464 
                                         
LIABILITIES AND STOCKHOLDERS' DEFICIT                                        
CURRENT LIABILITIES                                        
Bank overdraft  $126,073.00                       $126,073.00   $—     $126,073.00 
Accounts payable and accrued liabilities   703,918                        703,918    (263,311)   440,607 
Harmonized sales tax payable   594,120                        594,120    —      594,120 
Withholding taxes payable   1,796,655                        1,796,655    (18,856)   1,777,799 
Deferred revenue   107,477                        107,477         107,477 
Convertible notes payable   246,612    (225,380)   211,121              232,353    —      232,353 
Short term loan   64,541         (20,098)             44,443    —      44,443 
Current portion of loan payable   7,953                        7,953    —      7,953 
Related party notes   622,356                        622,356    (416,361)   205,995 
Current liabilities - held for resale   —                          —      698,528    698,528 
Total current liabilities   4,269,705    (225,380)   191,023    —      —      4,235,348    —      4,235,348 
COMMITMENTS                                        
                                         
 
                                         
NON CURRENT LIABILITIES:                                        
Loan payable   28,452                        28,452    —      28,452 
Total Liabilities   4,298,157    (225,380)   191,023    —      —      4,263,800    —      4,263,800 
                                         
STOCKHOLDERS' DEFICIT                                        
Preferred Stock - Series A; $0.01 par value,                                        
3,000,000 shares authorized; -0- issued and outstanding   —                               —        
Preferred Stock - Series B; $0.01 par value,                                        
10,000,000 shares authorized; -0- issued and outstanding   —                               —        
Common stock; $0.01 par value, 500,000,000                                        
shares authorized; 41,065,564 shares issued and outstanding as of December 31, 2013   410,656                        410,656    —      410,656 
Additional paid-in capital   8,155,474    2,444,618    1,705,495    365,850    1,249,192    13,920,629    —      13,920,629 
Accumulated other comprehensive loss   264,135                        264,135    —      264,135 
Accumulated deficit   (11,934,958)   (2,219,238)   (1,896,518)   (365,850)   (1,249,192)   (17,665,756)   —      (17,665,756)
Total Stockholders' Deficit   (3,104,693)   225,380    (191,023)   —      —      (3,070,336)   —      (3,070,336)
Total Liabilities and Stockholders' Deficit  $1,193,464   $—     $—     $—     $—     $1,193,464   $—     $1,193,464 
                                         

 

 

GREENESTONE HEALTHCARE CORPORATION
INCOME STATEMENT

For the Year Ended December 31, 2013

( Expressed in $ US )

    As Previously Reported on Form 10-K    BCF    Legal Fees    Stock Based Compensation    As Restated    Reclassify Discontinued Operations    As Restated and Reclassified 
Revenues  $5,962,304   $—     $—     $—     $5,962,304   $(2,276,577)  $3,685,727 
Cost of services provided   1,256,483                   1,256,483    (1,256,483)   —   
Gross margin   4,705,821    —      —      —      4,705,821    (1,020,094)   3,685,727 
Operating expenses                                   
Depreciation   183,260                   183,260    -68,793    114,467 
General and administrative   601,863                   601,863    -144,225    457,638 
Management fees   233,016                   233,016    -38,836    194,180 
Meals and entertainment   1,830                   1,830    -87    1,743 
Professional fees   402,995         365,850         768,845    -21,260    747,585 
Rent   1,016,387                   1,016,387    -285,849    730,538 
Salaries and wages   3,118,718              1,249,192    4,367,910    -461,105    3,906,805 
Supplies   339,029                   339,029    -146,636    192,393 
Travel   42,481                   42,481    -9    42,472 
Total operating expenses   5,939,579    —      365,850    1,249,192    7,554,621    (1,166,800)   6,387,821 
Operating loss  $(1,233,758)  $—     $(365,850)  $(1,249,192)  $(2,848,800)  $146,706   $(2,702,094)
Other income (loss)                                   
Interest expense   (397,298)   (281,475)             (678,773)   103,425    (575,348)
Net loss from continuing operations  $(1,631,056)  $(281,475)  $(365,850)  $(1,249,192)  $(3,527,573)  $250,131   $(3,277,442)
Loss from discontinued operations, net of tax   —                          (250,131)     
Net loss applicable to common shareholders  $(1,631,056)  $(281,475)  $(365,850)  $(1,249,192)  $(3,527,573)  $—     $(3,277,442)
Accumulated other comprehensive loss                                   
Foreign currency translation adjustment   311,861                   311,861        250,131 
Total comprehensive loss  $(1,319,195)  $(281,475)  $(365,850)  $(1,249,192)  $(3,215,712)  $—     $(3,215,712)
Basic and diluted income (loss) per common share- continuing operations  $(0.05)  $(0.01)  $(0.01)  $(0.04)  $(0.11)  $0.01   $.10
 
                                    
Basic and diluted loss per common share- discontinued operations   $ ( -)    $ ( -)    $ ( -)    $ ( -)    $ ( -)   $(0.01)  $0.01
                                    
Basic and diluted loss per common share  $(0.04)  $(0.01)  $(0.01)  $(0.04)  $(0.10)   $ ( -)   $0.11
Weighted average outstanding   33,588,851    33,588,851    33,588,851    33,588,851    33,588,851    33,588,851    33,588,851 

 

GREENESTONE HEALTHCARE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2013
( Expressed in $US )
  As Previously Reported on Form 10-K  BCF  Legal Fees  Stock Based Compensation  As Restated  Reclassify Discontinued Operations  Conform to 2014 Presentation  As Restated and Reclassified
 Cash flows from operating activities:                                        
  Net loss  $(1,631,056)  $(281,475)  $(365,850)  $(1,249,192)  $(3,527,573)   $250,131.        $(3,277,442)
  Net loss from discontinued operations, net of tax                       —      (250,131)        (250,131)
  Net loss from continuing operations   (1,631,056)   (281,475)   (365,850)   (1,249,192)   (3,527,573)   —      —      (3,527,573)
  Adjustments to reconcile net loss to net cash provided by operating activities:                                        
   Depreciation   183,260                   183,260              183,260 
   Provision for bad debts                       —           29,511    29,511 
   Stock compensation                  1,249,192    1,249,192              1,249,192 
   Stock issued for services             365,850         365,850              365,850 
   Amortization of beneficial conversion feature        281,475              281,475              281,475 
  Changes in operating assets and liabilities                                        
   Inc/dec in accounts receivable   (60,875)                  (60,875)   65,286    (29,511)   (25,100)
   Inc/dec in inventory   3,621                   3,621    (3,621)        —   
   Inc/dec in prepaids   1,360                   1,360    (42,245)        (40,885)
   Inc/dec in due to related parties                       —      —           —   
 
   Inc/dec in accounts payable and accrued liabilities   (159,940)                  (159,940)   (74,892)        (234,832)
   Inc/dec in taxes payable   1,037,724                   1,037,724    (2,799)        1,034,925 
   Inc/dec in deferred revenue   (108,318)                  (108,318)             (108,318)
Net cash provided by (used in) operating activities- continuing operations   (734,224)   —      —      —      (734,224)   (58,271)   —      (792,495)
Net cash provided by (used in) operating activities- discontinued operations                            58,271         58,271 
 Net cash provided (used in) operating activities   (734,224)   —      —      —      (734,224)   —      —      (734,224)
                                         
 Cash flows from investing activities:                                        
  Cash paid for purchase of fixed assets   (101,818)                  (101,818)   (13,910)        (115,728)
  Net cash used by investing activities   (101,818)   —      —      —      (101,818)   (13,910)   —      (115,728)
                                         
 Cash flows from financing activities:                                        
  Repayment of notes payable                                        
  Changes in restricted cash   (94,020)                  (94,020)             (94,020)
  Proceeds from issuance of short term notes   53,902                   53,902    (107,080)        (53,178)
  Proceeds from bank indebtedness   55,270                   55,270    —      70,803   126,073  
  Repayment of short term notes                       —      (416,361)        (416,361)
  Proceeds from issuance of related party notes   531,708                   531,708    202,027         733,735 
  Repayment of related party notes   (99,834)                  (99,834)   —           (99,834)
  Net proceeds from additional paid in capital   68,111                   68,111         (68,111)   —   
  Proceeds from issuance of common stock   9,044                   9,044         68,111    77,155 
Net cash provided by (Used in) financing activities- continuing operations   524,181    —      —      —      524,181    (321,414)   70,803   273,570 
 
Net cash provided by (Used in) financing activities- discontinued operations                       —      335,324         335,324 
  Net cash provided by financing activities   524,181    —      —      —      524,181    13,910    70,803   482,821 
Effect of exchange rate on cash   311,861                   311,861              311,861 
                                         
 Net increase in cash   —      —      —      —      —      —      70,803   (55,270)
 Cash, beginning of period  $—     $—     $—     $—     $—     $—     $(70,803)   (70,803)
                                         
 Cash, end of period  $—     $—     $—     $—     $—     $—     $(126,073)  $(126,073)
                                         
 Supplemental cash flow information:                                        
  Cash paid for interest  $397,298                  $397,298             $397,298 
  Cash paid for income taxes  $—     $—     $—     $—     $—     $—     $—     $—   

 

GREENESTONE HEALTHCARE CORPORATION
Consolidated Balance Sheet
December 31, 2012
                   
   As Previously Reported on Form 10-K  Opening Deficit  BCF  Legal Fees  Compensation  As Restated  Reclassify Discontinued Operations  As Restated and Reclassified
                         
ASSETS                        
CURRENT ASSETS                                        
Cash  $—                         $—     $—     $—   
Accounts receivable   380,043                        380,043    (181,129)   198,914 
Prepaid expenses   111,214                        111,214    (67,576)   43,638 
Inventory   16,169                        16,169    (16,169)   —   
Current assets - held for sale   —                          —      264,874    264,874 
Total current assets   507,426    —      —      —      —      507,426    —      507,426 
                                         
NON CURRENT ASSETS:                                        
Fixed assets   617,567                        617,567    (266,788)   350,779 
Cash – Restricted                            —      —      —   
Long term assets - held for resale                                 266,788    266,788 
Total assets  $1,124,993   $—     $—     $—     $—     $1,124,993   $—     $1,124,993 
                                         
LIABILITIES AND STOCKHOLDERS' DEFICIT                                        
CURRENT LIABILITIES                                        
Bank overdraft  $70,803                       $70,803   $—     $70,803 
Accounts payable and accrued liabilities   863,858                        863,858    (188,419)   675,439 
Harmonized sales tax payable   313,295                        313,295    —      313,295 
Withholding taxes payable   1,039,756                        1,039,756    (16,057)   1,023,699 
Deferred revenue   215,793                        215,793         215,793 
                                         
Convertible notes payable   1,820,713    (732,321)   506,941              1,595,333    (202,027)   1,393,306 
Short term loan                            —      —      —   
Current portion of loan payable   8,129                        8,129    —      8,129 
Related party notes   190,484                        190,484    107,080    297,564 
 
Current liabilities - held for resale   —                          —      299,423    299,423 
Total current liabilities   4,522,831    (732,321)   506,941    —      —      4,297,451    —      4,297,451 
                                         
                                         
                                         
NON CURRENT LIABILITIES:                                        
Loan payable (note 9)   38,917                        38,917    —      38,917 
Total Liabilities   4,561,748    (732,321)   506,941    —      —      4,336,368    —      4,336,368 
                                         
STOCKHOLDERS' DEFICIT                                        
Preferred Stock - Series A; $0.01 par value,                                        
3,000,000 shares authorized; -0- issued and                                        
Outstanding   —                               —        
Preferred Stock - Series B; $0.01 par value,                                        
10,000,000 shares authorized; -0- issued and                                        
Outstanding   —                               —        
Common stock; $0.01 par value, 100,000,000                                        
shares authorized; 27,234,279                                        
shares issued and outstanding as of   272,343                        272,343    —      272,343 
Additional paid-in capital   6,642,530    1,356,436    1,088,182    365,850    936,894    10,389,892    —      10,389,892 
Accumulated other comprehensive loss   (47,726)                       (47,726)   —      (47,726)
Accumulated deficit   (10,303,902)   (624,115)   (1,595,123)   (365,850)   (936,894)   (13,825,884)   —      (13,825,884)
Total Stockholders' Deficit   (3,436,755)   732,321    (506,941)   —      —      (3,211,375)   —      (3,211,375)
Total Liabilities and Stockholders' Deficit  $1,124,993   $—     $—     $—     $—     $1,124,993   $—     $1,124,993 
                                         

 

 

GREENESTONE HEALTHCARE CORPORATION
INCOME STATEMENT
For the Year Ended December 31, 2012
                   
    As Previously Reported on Form 10-K    BCF    Legal Fees    Compensation    As Restated    Reclassify Discontinued Operations    As Restated and Reclassified 
Revenues  $5,540,909   $—     $—     $—     $5,540,909   $(1,874,105)  $3,666,804 
Cost of services provided   1,050,002                   1,050,002    (1,050,002)   —   
Gross margin   4,490,907    —      —      —      4,490,907    (824,103)   3,666,804 
Operating expenses                                   
Continuing education   25,739                   25,739         25,739 
Depreciation   223,984                   223,984    (87,224)   136,760 
General and administrative   546,563                   546,563    (135,026)   411,537 
Management fees   179,924                   179,924    (37,484)   142,440 
Meals and entertainment   3,385                   3,385    (472)   2,913 
Medical supplies   132,253                   132,253    (132,253)   0 
Professional fees   128,578                   128,578    (15,993)   112,585 
Rent   847,558                   847,558    (196,417)   651,141 
Salaries and wages   3,410,659              936,894    4,347,553    (657,777)   3,689,776 
Subcontract fees   42,890                   42,890         42,890 
Supplies   181,590                   181,590         181,590 
Travel   37,930                   37,930    (61)   37,869 
Total operating expenses   5,761,053    —      —      936,894    6,697,947    (1,262,707)   5,435,240 
Operating loss  $(1,270,146)  $—     $—     $(936,894)  $(3,079,476)  $438,604   $(1,768,436)
Other income (loss)                                   
Interest expense   (214,207)   (658,229)             (872,436)   220,431    (652,005)
Net loss from continuing operations  $(1,484,353)  $(658,229)  $—     $(936,894)  $(3,079,476)  $659,035   $(2,240,441)
Loss from discontinued operations, net of tax   —                          (659,035)   (659,035)
Net loss applicable to common shareholders  $(1,484,353)  $(658,229)  $—     $(936,894)  $(3,079,476)  $—     $(3,079,476)
Accumulated other comprehensive loss                                   
Foreign currency translation adjustment   (69,444)                  (69,444)        (69,444)
Total comprehensive loss  $(1,553,797)  $(658,229)  $—     $(936,894)  $(3,148,920)  $—     $(3,148,920)
                                    
 
Basic and diluted income (loss) per common share- continuing operations  $(0.10)  $(0.05)   ($-   $(0.07)  $(0.21)  $0.05   $(0.16)
                                    
Basic and diluted loss per common share- discontinued operations   $ ( -)    $ ( -)    $ ( -)    $ ( -)    $ ( -)   $(0.05)  $(0.05)
                                    
Basic and diluted loss per common share  $(0.10)  $(0.05)   ($-   $(0.07)  $(0.21)   ($-   $(0.21)
Weighted average outstanding   14,392,555    14,392,555    14,392,555    14,392,555    14,392,555    14,392,555    14,392,555 

 

 

GREENESTONE HEALTHCARE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2012
( Expressed in $US )
                      
  As Previously Reported on Form 10-K  BCF  Legal Fees  Compensation  As Restated  Reclassify Discontinued Operations  Conform to 2014 Prresenttion  As Restated and Reclassified
 Cash flows from operating activities:                                        
  Net loss  $(2,496,861)  $(658,229)  $—     $(936,894)  $(4,091,984)   $250,131.        $(3,841,853)
  Net loss from discontinued operations, net of tax                       —      (250,131)        (250,131)
  Net loss from continuing operations   (2,496,861)   (658,229)   —      (936,894)   (4,091,984)   —      —      (4,091,984)
  Adjustments to reconcile net loss to net cash provided by operating activities:                                        
   Depreciation   129,766                   129,766              129,766 
   Provision for bad debts                       —                —   
   Stock compenstion                  936,894    936,894              936,894 
   Stock issued for services                       —                —   
   Amortization of beneficial conversion feature        658,229              658,229              658,229 
  Changes in operating assets and liabilities                                        
   Inc/dec in accounts receivable   (147,516)                  (147,516)   7,887    —      (139,629)
   Inc/dec in inventory   (818)                  (818)   4,386         3,568 
   Inc/dec in prepaids   (31,288)                  (31,288)   (2,786)        (34,074)
 
   Inc/dec in due to related parties                       —      —           —   
   Inc/dec in accounts payable and accrued liabilities   333,966                   333,966    (386,607)   (15)   (52,656)
   Inc/dec in taxes payble   264,185                   264,185    —           264,185 
   Inc/dec in deferred revenue   116,692                   116,692              116,692 
Net cash provided by (used in) operating activities- continuing operations   (1,831,874)   —      —      —      (1,831,874)   (377,120)   (15)   (2,209,009)
Net cash provided by (used in) operating activities- discontinued operations                            377,120         377,120 
 Net cash provided (used in) operating activities   (1,831,874)   —      —      —      (1,831,874)   —      (15)   (1,831,889)
 Cash flows from investing activities:                                        
  Cash paid for purchase of fixed assets   (428,122)                  (428,122)   (39,370)        (467,492)
  Net cash used by investing activities   (428,122)   —      —      —      (428,122)   (39,370)   —      (467,492)
                                         
 Cash flows from financing activities:                                        
  Repayment of notes payable                                        
  Changes in restricted cash                       —                —   
  Proceeds from issuance of short term notes   2,053,374                   2,053,374    819,341         2,872,715 
  Proceeds from bank indebtedness   28,266                   28,266    —      (28,266)   —   
  Repayment of short term notes                       —      —           —   
  Proceeds from issuance of related party notes   (74,593)                  (74,593)   (202,027)        (276,620)
  Repayment of related party notes                       —      349,544         349,544 
  Net proceeds from additional paid in capital   85,002                   85,002         (85,002)   —   
  Proceeds from issuance of common stock   84,998                   84,998         85,002    170,000 
 
Net cash provided by (Used in) financing activities- continuing operations   2,177,047    —      —      —      2,177,047    966,858    (28,266)   3,115,639 
Net cash provided by (Used in) financing activities- discontinued operations                       —      (927,488)        (927,488)
  Net cash provided by financing activities   2,177,047    —      —      —      2,177,047    39,370    (28,266)   2,188,151 
Effect of exchange rate on cash   34,573                   34,573              34,573 
                                         
 Net increase in cash   (48,376)   —      —      —      (48,376)   —      (28,281)   (76,657)
 Cash, beginning of period  $48,376   $—     $—     $—     $48,376   $—           48,376 
                                         
 Cash, end of period  $—     $—     $—     $—     $—     $—     $(28,281)  $(28,281)
 Supplemental cash flow information:                                        
  Cash paid for interest  $26,918                                    
  Cash paid for income taxes  $—     $—     $—     $—     $—     $—     $—     $—   
 Noncash Transaction:                                        
 Common stock issued as a result of conversion of convertible notes payable                                        

 

GREENESTONE HEALTHCARE CORPORATION

Notes to Consolidated Financial Statements—(Continued)

2. 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 its corporate name to GreeneStone Healthcare Corporation from Nova Natural Resources Corporation. As at December 31, 2014, the Company owns 100% of the outstanding shares of Greenestone Clinic Muskoka Inc., which was incorporated in 2010 under the laws of the Province of Ontario, Canada. Greenestone Clinic Muskoka Inc. provides medical services to various patients in a clinic located in the regional municipality of Muskoka.  

 

3. Going concern

 

The Company’s consolidated financial statements have been prepared in accordance with US GAAP applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations in the normal course of business. As at December 31, 2014 the Company has a working capital deficiency of $4,640,883 and accumulated deficit of $19,566,029. Management believes that current available resources will not be sufficient to fund the Company’s planned expenditures, including past due payroll and sales tax payments, as well as estimated penalties and interest, 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, or generating sufficient revenue in excess of costs.. If the Company raises additional capital through the issuance of equity securities or securities convertible into equity, stockholders will experience dilution, and such securities may have rights, preferences or privileges senior to those of the holders of common stock or convertible senior notes. If the Company raises additional funds by issuing debt, the Company may be subject to limitations on its operations, through debt covenants or other restrictions. If the Company obtains additional funds through arrangements with collaborators or strategic partners, the Company may be required to relinquish its rights to certain geographical areas, or techniques that it might otherwise seek to retain.. There is no assurance that the Company will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on the Company’s financial condition. These consolidated financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue operations.

 

These factors create substantial doubt about Greenestone’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments relating to the recoverability or classification of recorded assets and liabilities or other adjustments that may be necessary should the Company not be able to continue as a going concern.

 

The ability of Greenestone to continue as a going concern is dependent on the Company generating cash from the sale of its common stock or obtaining debt financing and attaining future profitable operations. Management's plans include selling its equity securities and obtaining debt financing to fund its capital requirement and ongoing operations; however, there can be no assurance the Company will be successful in these efforts.

  

4. Summary of significant accounting policies

 

a) Financial Reporting

 

The Company prepares its financial statements in conformity with accounting principles generally accepted in the United States of America. Revenues and expenses are reported on the accrual basis, which means that income is recognized as it is earned and expenses are recognized as they are incurred.

 

Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company's system of internal accounting control is designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the Company for the respective periods being presented.

 

GREENESTONE HEALTHCARE CORPORATION

Notes to Consolidated Financial Statements—(Continued)

 

b) Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

c) Principals of consolidation and foreign currency translation

 

The accompanying consolidated financial statements include the accounts of the Company, its subsidiary as noted in note 2. All inter-company transactions and balances have been eliminated on consolidation.

 

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

 

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.

 

The relevant translation rates are as follows: For the year ended December 31, 2014 a closing rate at 0.8620 $US:$CAN, and an average rate at 0.9051 $US:$CAN .

 

d) Revenue recognition

 

The Company recognizes revenue from the rendering of services when they are earned; specifically when all of the following conditions are met:

 

the significant risks and rewards of ownership are transferred to customers and the Company retains neither continuing involvement nor effective control;
there is clear evidence that an arrangement exists;
the amount of revenue and related costs can be measured reliably; and
it is probable that the economic benefits associated with the transaction will flow to the Company.

In particular, the Company recognizes:

 

Fees for out-patient counselling, coaching, intervention, psychological assessments and other related services when patients receive the service; and
Fees for in-patient addiction treatments proportionately over the term of the patient’s treatment.

 

GREENESTONE HEALTHCARE CORPORATION

Notes to Consolidated Financial Statements—(Continued)

 

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.

 

e) Non-monetary transactions

 

The Company’s policy is to measure an asset exchanged or transferred in a non-monetary transaction at the more reliable measurement 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.

f) 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.

 

The Company has $86,200 in restricted cash held by their bank to cover against the possibility of credit card charge backs, for services not performed.

 

g) Accounts receivable

 

The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company's estimate is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company's estimate of the allowance for doubtful accounts will change. At December 31, 2014 and December 31, 2013, the Company has a $27,294 and $ 28,578 allowance for doubtful accounts, respectively.

 

h) 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, loan payable and related party notes.

 

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

 

GREENESTONE HEALTHCARE CORPORATION

Notes to Consolidated Financial Statements—(Continued)

 

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 December 31, 2014. The Company did not have any fair value adjustments for assets and liabilities measured at fair value on a non-recurring basis during the year ended December 31, 2014.

 

i) 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%
Vehicles   30%

 

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.

 

j) 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.

 

k) 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 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.

 

GREENESTONE HEALTHCARE CORPORATION

Notes to Consolidated Financial Statements—(Continued)

 

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 2001, through 2013 are subject to audit or review by the US tax authority, where as fiscal 2010 through 2013 are subject to audit or review by the Canadian tax authority.

 

l) Earnings per share information

 

FASB ASC 260-10, “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. The effect of computing diluted loss per share is anti-dilutive and, as such, basic and diluted loss per share is the same for the years ended December 31, 2014 and 2013.

 

m) Share based expenses

 

ASC 718-10 "Compensation - Stock Compensation" prescribes accounting and reporting standards for all stock-based payments awarded 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". 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.

 

n) Legal Proceedings

 

The costs of prosecuting and defending legal actions are expensed as incurred.

 

o) Accounting for Uncertainty in Income Taxes

 

The Financial Accounting Standards Board has issued guidance on Accounting for Uncertainty in Income Taxes, FASB ASC 740, Income Taxes which prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Management has concluded that the Company has taken no uncertain tax positions that require adjustment to the financial statements to comply with the provisions of this guidance. When applicable, the Company will include interest and penalties related to uncertain tax positions in income tax expense.

 

GREENESTONE HEALTHCARE CORPORATION

Notes to Consolidated Financial Statements—(Continued)

 

p) 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 uses 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 are 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.

 

q) Prior Period Reclassifications

 

Reclassifications of prior period amounts related to discontinued operations as a result of the expected 1816191 Ontario Limited disposition.

 

5. Recently adopted accounting pronouncements

 

The FASB has issued ASU No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Company has not yet determined the effect of the adoption of this standard and it is not expected to have a material impact on the Company’s condensed consolidated financial position and results of operations.

 

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. ASU 2014-09 is effective for public companies for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is not permitted. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company is currently evaluating the impact of adopting the new revenue standard on its financial statements.

 

In August 2014, the FASB issued a new accounting standard which requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern for each annual and interim reporting period. If substantial doubt exists, additional disclosure is required. This new standard will be effective for the Company for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. The Company expects to adopt this new standard for the fiscal year ending December 31, 2014 and the Company will continue to assess the impact on its consolidated financial statements.

 

The Company does not expect all other newly issued accounting pronouncements and believes such pronouncements do not have a material effect on the Company’s financial statements.

 

GREENESTONE HEALTHCARE CORPORATION

Notes to Consolidated Financial Statements—(Continued)

6. 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, December 31, 2014 and 2013.

  

(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 accounts receivable.

  

Credit risk associated with accounts receivable of Greenestone Clinic Muskoka Inc. is mitigated due to balances from many customers, as well as through credit checks and frequent reviews of receivables to ensure timely collection. In addition, there is no concentration risk with the Greenestone Clinic Muskoka Inc. accounts receivable balance since balances are due from many customers.

 

In the opinion of management, credit risk with respect to accounts receivable is assessed as low, not material and remains unchanged from the prior year.

 

 (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 $~ and accumulated deficit of $1~. As disclosed in note 3, 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. In the opinion of management, liquidity risk is assessed as high, material and remains unchanged from the prior year.

 

(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. The Company is not exposed to interest rate risk on its bank indebtedness as there is a balance of $0 at December 31, 2014. This liability is based on floating rates of interest that have been stable during the current reporting period. In the opinion of management, interest rate risk is assessed as low, not material and remains unchanged from the prior year.

 

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. The Company is subject to currency risk as its subsidiaries operate in Canada and are subject to fluctuations in the Canadian dollar. Most of the Company’s financial assets and liabilities are denominated in Canadian dollars. Based on the net exposures at December 31, 2014, a 5% depreciation or appreciation of the Canadian dollar against the U.S. dollar would result in an approximate $80,500 increase or decrease in the Company’s after-tax net loss from continuing operation. The Company has not entered into any hedging agreements to mediate this risk. In the opinion of management, currency risk is assessed as low, material and remains unchanged from the prior year.

 

GREENESTONE HEALTHCARE CORPORATION

Notes to Consolidated Financial Statements—(Continued)

 

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

 

7. Accounts receivable

 

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

 

   December 31, 2014  December 31, 2013
Treatment program  $175,585   $134,291 
Outpatient Services   16,541    88,790 
Allowance for doubtful accounts   (27,294)   (28,578)
   $164,832   $194,503 

 

8. Fixed assets    

 

   Cost  Accumulated Amortization  December 31, 2014  December 31, 2013
Computer equipment  $20,371   $13,019   $7,352   $11,118 
Furniture and equipment   335,684    221,378    114,306    179,850 
Medical equipment   4,490    3,100    1,391    1,961 
Vehicles   64,175    24,152    40,023    45,520 
Leasehold improvements   142,793    49,322    93,471    44,797 
   $567,514   $310,971   $256,543   $283,246 

 

9. Convertible notes payable

 

The Company does not have any convertible notes outstanding at December 31, 2014. During the year ended December 31, 2014 $197,730 in notes were converted into 728,459 common shares at set rates as indicated by individual note. During the year ended December 31, 2013, $1,479,965 in notes were converted into 10,031,303 common shares at set rates as indicated by individual note. There was $48,284 in a note payable at December 31, 2013 that was reclassified to a related party payable account.

 

GREENESTONE HEALTHCARE CORPORATION

Notes to Consolidated Financial Statements—(Continued)

 

10. Loan payable

 

The Company has an automobile loan payable bearing interest at 4.49% with blended monthly payments of $835 that matures March 2018. The loan is secured by the vehicle with a net book value as at December 31, 2014 of $40,023. Estimated principal re-payments to December 31 st are as follows: 

 2015   $7,625 
 2016    8,457 
 2017    8,845 
 Thereafter    1,158 
    $26,085 

 

11. Taxes payable 

 

The Company has taxes, interest and penalties payable at December 31, 2014 and 2013 as follows:

    2014    2013 
Harmonized sales tax  $590,919   $594,120 
Payroll taxes   2,065,377    1,777,799 
US tax penalties   150,000    - 
           
   $2,806,296   $2,371,919 

 

Contingency related to outstanding payroll tax liabilities:

 

The Company is delinquent in filing its payroll tax returns resulting in taxes, interest and penalties payable at December 31, 2014 and 2013. As of December 31, 2014 and 2013 as part of Taxes Payable, the Company has payroll tax liabilities of approximately $2,065,000 and $1,778,000, respectively due to various taxing authorities on the consolidated balance sheets. If the Company does not satisfy these liabilities, the taxing authorities may place liens on its bank accounts which would have a negative impact on its ability to operate. Further, the actual liability may be higher due to interest or penalties assessed by same taxing authorities.

 

12. Short term convertible note payable

 

The Company has one short-term loan agreement during the period totalling $42,465. During the year ended December 31, 2014, an amount of $127,076 was converted into 2,245,991 common shares.

 

The loan is with JMJ Financial in the amount of $42,465. The lender has the right, at any time after 180 days from effective date to convert all or part of the outstanding and unpaid principal sum and accrued interest into shares of common stock, based on the average of the two lowest closing prices during the 22 days prior start of conversion period.

 

The Company has identified the beneficial conversion feature related to the above-described notes. The accounting treatment of beneficial conversion features requires that the Company record fair value of the discount as of the date when the funds were received. The determined fair value of the beneficial conversion feature was charged as a debt discount up to the net proceeds of the note with the remainder if any charged to current period operations as non-cash interest expense.

 

At December 31, 2014 the debt discount on these notes amounted to $12,708.

 

GREENESTONE HEALTHCARE CORPORATION

Notes to Consolidated Financial Statements—(Continued)

13. Related party transactions

 

A portion of related party notes at December 31, 2014 is due to Greenestone Clinic Inc. in the amount of $84,736 (December 31, 2013: $205,995). 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, non-secured without any specified terms of repayment.

 

The Company had management fees totalling $122,271 for the year ended December 31, 2014 (and for 2013 those fees were $194,180) which were paid to the director (Greenestone Clinic Inc.) 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. During the year ended December 31, 2014, the Company had rent expense of $412,488 (2013 - $454,381) to Cranberry Cove Holdings Ltd. Cranberry Cove Holdings Ltd. is related to the Company by virtue of its shareholder being a director of the Company.

 

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.

  

14. Stockholders’ deficit

 

Authorized common shares

 

On 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 shares with par value at $0.01. The amendment was approved by the Colorado Secretary of State in May 2012.

 

On March 25, 2013 the Company filed a certificate of Amendment with the Colorado Secretary of State to increase the aggregate number of shares which the Company has the authority to issue to five hundred million (500,000,000) common shares, issued at $0.01 par value per share from 100,000,000 common shares with par value at $0.01, to authorize three million (3,000,000) series A convertible preferred shares, par value of $1.00 per share, and to the authorize ten million (10,000,000) series B convertible preferred shares, par value $0.01 per share. Each series B convertible preferred shares is convertible into 10 Common shares. The amendment was approved by the Colorado Secretary of State on March 26, 2013.

 

Issued common shares

 

The Company has a total of 46,134,787 issued and outstanding common shares as at December 31, 2014. At December 31, 2013 the Company had 41,065,564 issued and outstanding common shares.

 

 15. Warrants and Options

 

Warrants

 

On December 24, 2013 the Company issued 4,500,000 warrants, expiring on January 19, 2016, exercisable at $0.15.

 

On January 17, 2014 as part of the sale of units of warrants and shares, the Company issued 1,500,000 warrants, expiring on December 19, 2016, exercisable at $0.15.

 

GREENESTONE HEALTHCARE CORPORATION

Notes to Consolidated Financial Statements—(Continued)

 

Options

 

On April 1, 2012, the Company granted 3,600,000 options to the Director of Aftercare at an exercise price of $0.20.  The intrinsic value of these options was recorded as an expense, at the rate of $312,248 per quarter over the life of the options, as they vested. The 3,600,000 options were terminated on May 5, 2014 upon the sale of Aftercare.

 

On August 15, 2014, the Company granted 300,000 options to the President of its Investor Relations firm at an exercise price of $0.00333.  The $34,418 intrinsic value of these options was recorded as an expense on that date.

 

On November 1, 2014, the Company granted 480,000 options to its Chief Financial Officer. at an exercise price of $0.12.  The $20,844 intrinsic value of these options was recorded as an expense on that date.

 

   Number of Options and Warrants 

Weighted Average

Exercise Price Per Share

             
 Outstanding at December 31, 2012    3,600,000   $0.200 
             
 Granted    1,500,000    0.150 
 Cancelled/forfeited    —      —   
 Expired    —      —   
 Exercised    —        
 Outstanding at December 31, 2013    5,100,000   $0.185 
             
 Granted    5,280,000    0.139 
 Cancelled/forfeited    —      —   
 Expired    (3,600,000)   (0.20)
 Exercised    —      —   
 Outstanding at December 31, 2014    6,780,000   $0.139 
             

  

16. Discontinued operations - 1816191 Ontario Limited (“1816191”)

 

In September 2014, the Board approved a plan to sell the Endoscopy business and the Company entered into a definitive agreement to sell the business on October 6, 2014 to Jaintheelal, a Company owned by Dr. Jay Parekh, the Company’s Medical director in charge of Endoscopy for the sum of $CAN1,250,000. The sale price of $CAN1,250,000.00 includes the assumption by Jaintheelal of debt in the same amount as the sale price, which debt is owed by 1816191 to the Company. At closing, Jaintheelal will be permitted to offset the assumed debt by up to US$650,000 through the cancellation of three million shares of the Company’s common stock (valued at approximately $CAN250,000) and the cancellation of related party debt owed by 1816191 to Jaintheelal and/or Jay Parekh (valued at approximately $CAN400,000). The remainder of the assumed debt will be repaid by 1816191 to the Company pursuant to a six-month, interest-bearing note.

 

GREENESTONE HEALTHCARE CORPORATION

Notes to Consolidated Financial Statements—(Continued)

 

Prior to the sale, at September 30, 2014, the Company had determined that a sale of the Endoscopy business was more-likely-than-not to occur over the next twelve months. Accordingly, the Company initiated an interim goodwill impairment analysis of the Endoscopy reporting units' goodwill balances as of September 30, 2014. As a result of this analysis, the Company determined that the net book value of our Endoscopy reporting unit exceeded its estimated fair value. The Company prepared a preliminary analysis to estimate the amount of an impairment charge as of September 30, 2014, and determined that it was establishable that an impairment, if any was probable and reasonably estimable. The preliminary fair value assessments were performed by the Company taking into consideration a number of factors including the preliminary results of a hypothetical purchase price allocation. As a result of the preliminary analysis, the Company determined that no impairment charge was necessary.

 

Until it was sold, the assets of this business segment, previously known as the Endoscopy segment, and related liabilities were classified as held for sale in the Consolidated Balance Sheet. The operating results of this business segment are reported as Discontinued operations, net of tax in the Consolidated Statements of Operations for all periods presented. Financial results are only related to disposed of or to-be-disposed of businesses.

 

Jaintheelal is owned by Dr. Jay Parekh, the Company’s former Medical director in charge of Endoscopy. The sale price of C$1,282,001.87 included the assumption by Jaintheelal of debt in the same amount as the sale price, which debt is owed by 1816191 to the Company in the amount of C$895,495.60 and to Jaintheelal of C$386,542.27. At closing, Jaintheelal offset the assumed debt to the registrant of C$895,495.60 by US$277,500.00 through the cancellation of two million four hundred and eight thousand two hundred and sixty eight shares of the Company’s common stock, for a net amount due to the Company of US$493,807. The remainder of the assumed debt owed by 1816191 to the Company is due June 30, 2015 and is in the form of an interest-bearing note. After the sale of 1816191, the Company’s principal operations are in the addiction treatment business.

 

The sale, to a related party, was recorded as a $1,104,304 addition to APIC, and a reduction of $90,304 to Comprehensive (Loss) Income.

17. Commitments and Contingencies

 

The Company is committed under a non-cancellable operating lease agreements for rental of premises for the rental of premises operated by Greenestone Clinic Muskoka Inc. which expires March 2019.

 

Future minimum annual payment requirements are as follows:

 2015   $288,488 
 2016    322,857 
 2017    329,312 
 2018    83,975 
 2019    251,926 
     $1,276,557 

 

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.

 

GREENESTONE HEALTHCARE CORPORATION

Notes to Consolidated Financial Statements—(Continued)

 

Contingency related to outstanding payroll tax liabilities:

 

The Company is delinquent in filing its payroll tax returns resulting in taxes, interest and penalties payable at December 31, 2014 and 2013. As of December 31, 2014 and 2013 as part of Taxes Payable, the Company has payroll tax liabilities of approximately $2,065,000 and $1,778,000, respectively due to various taxing authorities on the consolidated balance sheets. If the Company does not satisfy these liabilities, the taxing authorities may place liens on its bank accounts which would have a negative impact on its ability to operate. Further, the actual liability may be higher due to interest or penalties assessed by same taxing authorities.

  

18. Income Taxes

 

The Company is not current in its tax filings as of December 31, 2014.

 

The Company accounts for income taxes under Accounting Standards Codification 740, Income Taxes “ASC 740”. ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carry forwards. ASC 740 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. Internal Revenue Code Section 382 “IRC 382” places a limitation on the amount of taxable income that can be offset by carry forwards after a change in control (generally greater than a 50% change in ownership).

 

The components of the Company’s future tax asset as at December 31, 2014 and December 31, 2013 are as follows:

   December 31,  December 31,
   2014  2013
         (as restated) 
Net operating loss carry forward  $19,566,029   $17,665,756 
Valuation allowance   (19,566,029)   (17,665,756)
Net future tax asset  $—     $—   

 

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

   December 31,  December 31,
   2014  2013
         (as restated) 
Tax at statutory rate  $665,096   $1,234,651 
Valuation allowance   (665,096)   (1,234,651)
Net future tax asset  $—     $—   

 

As at December 31, 2014, the Company is in arrears on filing its statutory income tax returns and the amounts presented above are based on estimates. The actual losses available could differ from these estimates. In addition, the Company could be subject to penalties for these unfiled tax returns.

 

During the year ended December 31, 2014, the Company has accrued and expensed $150,000 (2013 - $nil) in penalties and interest attributable to delinquent tax returns. Management believes the Company has adequately provided for any ultimate amounts that are likely to result from audits of these returns once filed; however, final assessments, if any, could be significantly different than the amounts recorded in the financial statements.

 

The Company operates in foreign jurisdictions and is subject to audit by taxing authorities. These audits may result in the assessment of amounts different than the amounts recorded in the consolidated financial statements. The Company liaises with the relevant authorities in these jurisdictions in regard to its income tax and other returns. Management believes the Company has adequately provided for any taxes, penalties and interest that may fall due.

 

Supplementary Data:

 

Unaudited Schedules to Financial Statements - Unaudited Quarterly Financial Data

 

The information for the first three quarters of the years ended December 31, 2013 and 2014 has been restated to correct the errors described in Note 1, Restatement of Previously Issued Financial Statements.

 

The restated quarterly Balance Sheets for the first three quarters of the years ended December 31, 2013 and 2014 are presented below:

 

 

GREENESTONE HEALTHCARE CORPORATION
Unaudited Consolidated Balance Sheet
March 31, 2013
( Expressed in $ US )                        
   As Previously Reported on Form 10-Q  Opening Deficit  BCF  Legal Fees  Compensation  As Restated  Reclassify Discontinued Operations  As Restated and Reclassified
ASSETS                                        
CURRENT ASSETS                                        
Cash  $—                         $—     $—     $—   
Accounts receivable   376,642                        376,642    (241,275)   135,367 
Prepaid expenses   123,407                        123,407    (65,446)   57,961 
Inventory   11,937                        11,937    (11,937)   —   
Current assets - held for sale   —                          —      318,658    318,658 
Total current assets   511,986    —      —      —      —      511,986    —      511,986 
                                         
NON CURRENT ASSETS:                                        
Fixed assets   568,879                        568,879    (241,962)   326,917 
Cash - Restricted                            —      —      —   
Long term assets - held for resale                                 241,962    241,962 
Total assets  $1,080,865   $—     $—     $—     $—     $1,080,865   $—     $1,080,865 
LIABILITIES AND STOCKHOLDERS' DEFICIT                                        
CURRENT LIABILITIES                                        
Bank overdraft  $144,494                       $144,494   $—     $144,494 
Accounts payable and accrued liabilities   846,200                        846,200    (196,373)   649,827 
Harmonized sales tax payable   378,831                        378,831    —      378,831 
Withholding taxes payable   1,174,134                        1,174,134    (20,592)   1,153,542 
Deferred revenue   140,472                        140,472         140,472 
Convertible notes payable   1,407,742    (225,380)   —                1,182,362    (150,491)   1,031,871 
Short term loan                            —      —      —   
Current portion of loan payable   8,045                        8,045    —      8,045 
Related party notes   308,126                        308,126    (287,721)   20,405 
Current liabilities - held for resale   —                          —      655,177    655,177 
Total current liabilities   4,408,044    (225,380)   —      —      —      4,182,664    —      4,182,664 
                                         
 
                                         
NON CURRENT LIABILITIES:                                        
Loan payable   36,040                        36,040    —      36,040 
Total Liabilities   4,444,084    (225,380)   —      —      —      4,218,704    —      4,218,704 
                                         
                                        
STOCKHOLDERS' DEFICIT                                        
Preferred Stock - Series A; $0.01 par value,                                        
3,000,000 shares authorized; -0- issued and                                        
outstanding   —                               —        
Preferred Stock - Series B; $0.01 par value,                                        
10,000,000 shares authorized; -0- issued and                                        
outstanding   —                               —        
Common stock; $0.01 par value, 500,000,000                                        
shares authorized; 29,746,668                                        
shares issued and outstanding   297,467                        297,467    —      297,467 
Additional paid-in capital   6,970,284    2,444,618    —           312,298    9,727,200    —      9,727,200 
Accumulated other comprehensive loss   49,064                        49,064    —      49,064 
Accumulated deficit   (10,680,034)   (2,219,238)   —           (312,298)   (13,211,570)   —      (13,211,570)
Total Stockholders' Deficit   (3,363,219)   225,380    —      —      —      (3,137,839)   —      (3,137,839)
Total Liabilities and Stockholders' Deficit  $1,080,865   $—     $—     $—     $—     $1,080,865   $—     $1,080,865 

 

 

GREENESTONE HEALTHCARE CORPORATION
UNAUDITED INCOME STATEMENT
For the Three months Ended March 31, 2013
( Expressed in $US )
  As Previously Reported on Form 10-Q  BCF  Legal Fees  Compensation  As Restated  Reclassify Discontinued Operations  As Restated and Reclassified
Revenues  $1,444,267   $—     $—     $—     $1,444,267   $(521,165)  $923,102 
Cost of services provided   293,092    293,092    (293,092    )    293,092    293,092      
Gross margin   1,151,175    —      —      —      1,151,175    (228,073)   923,102 
Operating expenses                                   
Continuing education   0    0                          
Depreciation   44,274    44,274    (17,243    )    27,031           
General and administrative   149,799    149,799    31,663    181,462                
Management fees   49,595    49,595    (9,919    )    39,676           
Meals and entertainment   1,096    1,096    (18    )    1,078           
Professional fees   100,771    100,771    (5,128    )    95,643           
Rent   250,169    250,169    (54,555    )    195,614           
Salaries and wages   818,881    312,298    1,131,179    (112,983    )    1,018,196      
Supplies   63,548    63,548    (32,958    )    30,590           
Travel   10,448    10,448    10,448                     
Total operating expenses   1,488,581    —      —      312,298    1,800,879    (201,141    1,599,738 
Operating loss  $(337,406)  $—     $—     $(312,298)  $(649,704)  $(26,932   $(676,636)
Other loss                                   
Interest expense   (38,726)   (72,888)   (111,614)   4,051    (107,563)          
Net loss from continuing operations  $(376,132)  $(72,888)  $—     $(312,298)  $(761,318)  $(22,881   $(784,199)
Loss from discontinued operations, net of tax   —      22,881    22,881                     
Net loss applicable to common shareholders  $(376,132)  $(72,888)  $—     $(312,298)  $(761,318)  $—     $(761,318)
Accumulated other comprehensive loss                                   
 
Foreign currency translation adjustment   96,790    96,790    96,790                          
Total comprehensive loss  $(279,342)  $(72,888)  $—     $(312,298)  $(664,528)  $—     $(664,528)     
Basic and diluted loss per common share- continuing operations  $(0.02)  $(0.00)   $ ( -)   $(0.01)  $(0.04)  $(0.00    )   $(0.04)
Basic and diluted loss per common share- discontinued operations   $ ( -)    $ ( -)    $ ( -)    $ ( -)    $ ( -)    0   $0.00   $0.00 
Basic and diluted loss per common share  $(0.02)  $(0.00)   $ ( -)   $(0.01)  $(0.04)   $ (-)   $(0.04)     
Weighted average outstanding   21,056,920    21,056,920    21,056,920    21,056,920    21,056,920    21,056,920    21,056,920      

 

 

GREENESTONE HEALTHCARE CORPORATION
Unaudited Consolidated Balance Sheet
June 30, 2013
( Expressed in $ US )
   As Previously Reported on Form 10-Q  Opening Deficit  BCF  Legal Fees  Compensation  As Restated  Reclassify Discontinued Operations  As Restated and Reclassified
                         
ASSETS                        
CURRENT ASSETS                                        
Cash  $6,978                       $6,978   $—     $6,978 
Accounts receivable   430,431                        430,431    (281,814)   148,617 
Prepaid expenses   100,679                        100,679    (4,889)   95,790 
Inventory   9,465                        9,465    (9,465)   —   
Current assets - held for sale   —                          —      296,168    296,168 
Total current assets   547,553    —      —      —      —      547,553    —      547,553 
                                         
NON CURRENT ASSETS:                                        
Fixed assets   527,035                        527,035    (219,922)   307,113 
Cash - Restricted   95,080                        95,080    —      95,080 
Long term assets - held for resale                                 219,922    219,922 
Total assets  $1,169,668   $—     $—     $—     $—     $1,169,668   $—     $1,169,668 
                                         
LIABILITIES AND STOCKHOLDERS' DEFICIT                                        
CURRENT LIABILITIES                                        
Bank overdraft  $—                         $—     $—     $—   
Accounts payable and accrued liabilities   1,007,178                        1,007,178    (309,587)   697,591 
Harmonized sales tax payable   414,363                        414,363         414,363 
Withholding taxes payable   1,275,589                        1,275,589    (17,810)   1,257,779 
Deferred revenue   160,386                        160,386         160,386 
Convertible notes payable   859,077    (152,492)   (3,703)             702,882    (128,358)   574,524 
Short term loan                            —           —   
Current portion of loan payable   7,864                        7,864         7,864 
Related party notes   384,331                        384,331    (281,344)   102,987 
Current liabilities - held for resale   —                          —      737,099    737,099 
Total current liabilities   4,108,788    (152,492)   (3,703)   —      —      3,952,593    —      3,952,593 
                                         
                                         
 
                                         
NON CURRENT LIABILITIES:                                        
Loan payable   32,839                        32,839    —      32,839 
Total Liabilities   4,141,627    (152,492)   (3,703)   —      —      3,985,432    —      3,985,432 
                                         
STOCKHOLDERS' DEFICIT                                        
Preferred Stock - Series A; $0.01 par value,                                        
3,000,000 shares authorized; -0- issued and outstanding                                        
Preferred Stock - Series B; $0.01 par value,                                        
10,000,000 shares authorized; -0- issued and outstanding                                        
Common stock; $0.01 par value, 500,000,000                                        
shares authorized; 23,767,535                                        
shares issued and outstanding   352,574                        352,574    —      352,574 
Additional paid-in capital   7,547,874    2,756,916    739,008    365,850    624,596    12,034,244    —      12,034,244 
Accumulated other comprehensive loss   134,180                        134,180    —      134,180 
Accumulated deficit   (11,006,587)   (2,604,424)   (735,305)   (365,850)   (624,596)   (15,336,762)   —      (15,336,762)
Total Stockholders' Deficit   (2,971,959)   152,492    3,703    —      —      (2,815,764)   —      (2,815,764)
Total Liabilities and Stockholders' Deficit  $1,169,668   $—     $—     $—     $—     $1,169,668   $—     $1,169,668 

 

GREENESTONE HEALTHCARE CORPORATION
UNAUDITED INCOME STATEMENT
For the Six months Ended June 30, 2013
( Expressed in $US )
    As Previously Reported on Form 10-Q    BCF    Legal Fees    Compensation    As Restated    Reclassify Discontinued Operations    To conform to 2014 presentation    As Restated and Reclassified 
Revenues  $2,973,268   $—     $—     $—     $2,973,268   $(1,137,190)       $1,836,078 
Cost of services provided   633,543                   633,543    (633,543)        —   
Gross margin   2,339,725    —      —      —      2,339,725    (503,647)        1,836,078 
Operating expenses                                        
Continuing education                       0              0 
Depreciation   89,477                   89,477    (34,407)        55,070 
General and administrative   348,461                   348,461    (72,003)   (85,252)   191,206 
Management fees   98,420                   98,420    (19,684)        78,736 
Meals and entertainment   1,262                   1,262    (89)        1,173 
Professional fees   263,035                   263,035    (10,009)        253,026 
Rent   502,727                   502,727    (113,183)        389,544 
Salaries and wages   1,563,026              624,596    2,187,622    (231,183)        1,956,439 
Supplies   155,622                   155,622    (77,452)        78,170 
Travel   20,380                   20,380    (7)        20,373 
Total operating expenses   3,042,410    —