UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2015

 

OR

 

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934  

 

For the Transition Period from ___________ to____________

 

Commission File Number: 000-15078

 

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 and zip code)

 

(416) 222-5501

(Registrant’s telephone number, including area code)

Prepared by:

Sunny J. Barkats, Esq.

18 East 41 ^st Street, 14^th Floor

New York, NY 10017

Tel (646) 502-7001

Fax (646) 607-5544

www.JSBarkats.com

 

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 past 12 months, and (2) has been subject to such filing requirements for the past 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 whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions 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]

 

As of August 19, 2015, there were 47,738,855 shares outstanding of the registrant’s common stock.  

 

	TABLE OF CONTENTS
	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements.	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	26
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings.	28
Item 1A.	Risk Factors.	28
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds.	28
Item 3	Defaults Upon Senior Securities.	28
Item 4.	Mine Safety Disclosures.	28
Item 5.	Other Information.	28
Item 6.	Exhibits.	29
Signatures		29

PART I – FINANCIAL INFORMATION

 

Explanatory Note

 

Overview of Restatement

 

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

 

(a)

restates its unaudited Consolidated Statement of Operations and Consolidated Statements of Cash Flows for the three months and six months ended June 30, 2014

(b)

amends its Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) as it relates to the six months ended June 30, 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 six months ended June 30, 2014, the Company would restate its previously issued financial statements.

 

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 six months ended June 30, 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.

 

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.

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. Quarterly reports for fiscal 2015 will include restated results for the corresponding interim periods of fiscal 2014. All amounts in this Quarterly Report on Form10-Q affected by the restatement adjustments reflect such amounts as restated.

Item 1. Financial Statements.

 

GREENESTONE HEALTHCARE CORPORATION

 

FOR THE SIX MONTHS ENDED JUNE 30, 2015

(Stated in U.S. $ unless stated otherwise)

 

TABLE OF CONTENTS

		Page
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 2015 (unaudited) and December 31, 2014		4
Unaudited Consolidated Statements of Operations for the three months and six months ended June 30, 2015 and 2014 (as restated)		5
Unaudited Consolidated Statement of Changes in Stockholder’s Deficit		6
Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 (as restated)		7
Notes to the Unaudited Consolidated Interim Financial Statements		9- 25

  

GREENESTONE HEALTHCARE CORPORATION

Consolidated Balance Sheets

		June 30, 2015 (unaudited)				December 31, 2014
ASSETS
Current assets
Cash		$	692			$	88,152
Accounts receivable, net			76,782				164,832
Prepaid expenses			34,083				46,267
Due on sale of Subsidiary			488,683				493,806
Total current assets			600,240				793,057
Cash - Restricted			80,064				86,200
Fixed assets, net			222,509				256,543
Total assets		$	902,813			$	1,135,800
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Bank overdraft		$	10,282			$	—
Accounts payable and accrued liabilities			539,104				808,971
Taxes payable			2,794,204				2,806,297
Deferred revenue			161,558				143,839
Current portion of loan payable			7,243				7,625
Short Term Convertible loan			—				29,758
Related party payables			60,824				51,336
Total current liabilities			3,573,215				3,847,826
Loan payable			13,484				18,460
Total liabilities			3,586,699				3,866,286
Stockholders' deficit
Preferred Stock - Series B; $0.01 par value, 10,000,000 shares authorized, nil and nil outstanding at June 30 2015 and December 31, 2014 respectively			—				—
Common stock; $0.01 par value, 500,000,000 shares authorized; 47,738,855 and 46,131,764 shares issued and outstanding  at June 30, 2015 and December 31, 2014 respectively			477,389				461,318
Additional paid-in capital			16,177,534				16,129,038
Accumulated other comprehensive loss			576,074				245,187
Accumulated deficit			(19,914,883	)			(19,566,029	)
Total stockholders' deficit			(2,683,886	)			(2,730,486	)
Total liabilities and stockholders' deficit		$	902,813			$	1,135,800

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

GREENESTONE HEALTHCARE CORPORATION

Consolidated Statements of Operations

(Unaudited)

 

		Three Months ended June 30,								Six Months ended June 30,
		2015				2014				2015				2014
						(As Restated)								(As Restated)
Revenues		$	947,934			$	1,005,610			$	1,628,646			$	1,615,819
Operating expenses
Depreciation			26,446				20,687				47,440				41,143
General and administrative			120,702				163,983				418,903				253,869
Management fees			48,337				22,865				96,705				68,108
Professional fees			73,983				4,785				157,994				65,053
Rent			90,637				72,495				179,392				250,800
Salaries and wages			469,234				867,232				913,705				1,772,172
Total operating expenses			829,339			$	1,152,047				1,814,139				2,451,145
Operating income (loss)			118,595				(146,437	)			(185,493	)			(835,326	)
Other ( expense ) income
Interest expense			(39,401	)			(12,248	)			(90,942	)			(64,699	)
Foreign exchange movements			(72,419	)			—				(72,419	)			(92,825	)
Net income (loss) from continuing operations			6,775				(158,685	)			(348,854	)			(992,850	)
Loss from discontinued operations, net of tax			—				(61,673	)			—				(106,920	)
Net income (loss) applicable to common shareholders			6,775				(220,358	)			(348,854	)			(1,099,770	)
Accumulated other comprehensive income (loss)
Foreign currency translation adjustment			15,709				(98,303	)			330,887				7,374
Total comprehensive income (loss)		$	22,484			$	(318,661	)		$	(17,967	)		$	(1,092,396	)
Basic and diluted income (loss) per common share- continuing operations		$	—			$	—			$	(0.01	)		$	(0.02	)
Basic and diluted income (loss) per common share- discontinued operations			—			$	—				—			$	—
Basic and diluted income (loss) per common share		$	—			$	—			$	(0.01	)		$	(0.02	)
Weighted average outstanding			47,389,404				46,651,173				46,890,025				46,651,173

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

GREENESTONE HEALTHCARE CORPORATION

Consolidated Statement of Changes in Stockholders' Deficit

		Preferred Series "B"								Common								Additional Paid				Comprehensive				Accumulated
		Shares				Amount				Shares				Amount				in Capital				(Loss) Income				Deficit				Total
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	)
Shares issued for debt conversion							—				300,000				3,000				5,117				—				—				8,117
Shares issued for services			106,000				1,060				250,000				2,500				53,346				—				—				56,906
Conversion of Series "B" to common			(106,000	)			(1,060	)			1,060,000				10,600				(9,540	)			—				—				—
Adjustments to previously issued shares for debt conversion, due to exchange adjustments											(2,909	)			(29	)			(427	)			—				—				(456	)
Foreign currency translation			—				—				—				—				—				330,887				—				330,887
Net loss																											(348,854	)			(348,854	)
Balance, June 30, 2015			—			$	—				47,738,855			$	477,389			$	16,177,534			$	576,074			$	(19,914,883	)		$	(2,683,886	)

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

GREENESTONE HEALTHCARE CORPORATION

Consolidated Statements of Cash Flows

(Unaudited)

		For the six month period ended
		June 30, 2015				June 30, 2014
						As Restated
Operating activities
Net loss			(348,854	)			(992,850	)
Net loss from discontinued operations, net of tax			—				(106,920	)
Net loss from continuing operations			(348,854	)			(1,099,770	)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation			47,440				41,143
Stock compensation			—				624,596
Stock issued for services			56,906
Amortization of beneficial conversion feature			12,709				43,071
Other Foreign Currency Movements			10,803				—
Changes in operating assets and liabilities:
Accounts receivable			88,050				79,590
Prepaid expenses			12,184				7,306
Accrued interest			—				13,689
Accounts payable and accrued liabilities			(269,867	)			(66,546	)
Taxes payable			(12,093	)			241,882
Deferred revenue			17,719				2,651
Net cash used in operating activities - continuing operations			(385,003	)			(112,387	)
Net cash used in operating activities - discontinued operations			—				(68,647	)
Net cash used in operating activities			(385,003	)			(181,034	)
Cash flows from investing activities
Acquisition of fixed assets			(13,406	)			(50,648	)
Net cash used in investing activities - discontinued operations			—				(7,751	)
Net cash used in investing activities			(13,406	)			(58,399	)
Cash flows from Financing activities
Change in restricted cash			—				540
Increase in bank overdraft			10,282				—
Repayment of notes payable			(5,358	)			(4,120	)
Repayment of convertible notes payable			(34,350	)
Proceeds from convertible notes payable			—				80,000
Proceeds from the sale of common stock			—				382,502
Proceeds from related party notes			9,488				67,201
Net cash used in financing activities - continuing operations			(19,938	)			526,123
Net cash used in financing activities - discontinued operations			—				(140,429	)
Net cash used in financing activities			(19,938	)			385,694

 

GREENESTONE HEALTHCARE CORPORATION

Consolidated Statements of Cash Flows

(Unaudited) (continued)

		For the six month period ended
		June 30, 2015				June 30, 2014
						As Restated
Effect of exchange rate on cash			330,887				7,374
Net change in cash			(87,460	)			153,635
Beginning cash balance (deficiency)			88,152				(126,073	)
Ending cash balance (deficiency) (excluding restricted)			692				27,562
Supplemental cash flow information
Cash paid for interest			7,511				28,248
Cash paid for taxes			—				—
Supplemental schedule of non-cash investing activities
Common stock issued as a result of convertible notes payable			8,117				262,869

See accompanying notes to the unaudited consolidated interim financial statements

 

GREENESTONE HEALTHCARE CORPORATION

Notes to the Unaudited Consolidated Financial Statements

 

1. Restatement of Previously Issued Financial Statements

 

The Company has restated its consolidated financial statements for the six months ended June 30, 2014.

 

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 six months ended June 30, 2014.

 

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.

 

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 restated Consolidated Balance Sheet as of June 30, 2014 and the restated Consolidated Statements of Operations and Cash Flows for the three and six months ended June 30, 2014 are presented below:

GREENESTONE HEALTHCARE CORPORATION

Notes to the Unaudited Consolidated Financial Statements

 

1. Restatement of Previously Issued Financial Statements (continued)

 

GREENESTONE HEALTHCARE CORP

RESTATED AND RECLASSIFIED CONSOLIDATED BALANCE SHEET

As at June 30, 2014

 

		As Previously Reported on Form 10-Q				Opening Deficit				BCF				Compensation				As Restated				Reclassify Discontinued Operations				As Restated and Reclassified
ASSETS
CURRENT ASSETS
Cash		$	27,562			$	—			$	—			$	—			$	27,562			$	—			$	27,562
Accounts receivable			396,337				—				—				—				396,337				(281,425	)			114,912
Prepaid expenses			103,762				—				—				—				103,762				(26,545	)			77,217
Inventory			31,897				—				—				—				31,897				(31,897	)			—
Current assets - held for sale			—				—				—				—				—				339,867				339,867
Total current assets			559,558				—				—				—				559,558				—				559,558
NON CURRENT ASSETS:
Cash - restricted			93,480				—				—				—				93,480								93,480
Fixed assets			524,886				—				—				—				524,886				(232,135	)			292,751
Long term assets - held for resale			—				—				—				—				—				232,135				232,135
Total assets		$	1,177,924			$	—			$	—			$	—			$	1,177,924			$	—			$	1,177,924
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued liabilities			595,275				—				—				—				595,275				(221,214	)			374,061
Taxes payable			2,633,188				—				—				—				2,633,188				(19,387	)			2,613,801
Deferred revenue			110,126				—				—				—				110,126				—				110,126
Current portion of loan payable			8,086				—				—				—				8,086				—				8,086
Short term loan			93,689				(34,357	)			8,785				—				68,117								68,117
Related party payables			597,412				—				—				—				597,412				(324,216	)			273,196
Current liabilities - held for resale			—				—				—				—				—				564,817				564,817
Total current liabilities			4,037,776				(34,357	)			8,785				—				4,012,204				—				4,012,204
NON CURRENT LIABILITIES:
Loan payable			24,200				—				—				—				24,200				—				24,200
Total Liabilities			4,061,976				(34,357	)			8,785				—				4,036,404				—				4,036,404
STOCKHOLDERS' DEFICIT
Common stock			473,431				—				—				—				473,431				—				473,431
Additional paid-in capital			8,738,070				4,150,113				34,286				624,596				13,547,065				—				13,547,065
Accumulated other comprehensive loss			271,509				—				—				—				271,509				—				271,509
Accumulated deficit			(12,367,062	)			(4,115,756	)			(43,071	)			(624,596	)			(17,150,485	)			—				(17,150,485	)
Total Stockholders' Deficit			(2,884,052	)			34,357				(8,785	)			—				(2,858,480	)			—				(2,858,480	)
Total Liabilities and Stockholders' Deficit		$	1,177,924			$	—			$	—			$	—			$	1,177,924			$	—			$	1,177,924

 

GREENESTONE HEALTHCARE CORPORATION

Notes to the Unaudited Consolidated Financial Statements

 

1. Restatement of Previously Issued Financial Statements (continued)

 

GREENESTONE HEALTHCARE CORPORATION

RESTATED AND RECLASSIFIED UNAUDITED INCOME STATEMENT

For the three months ended June 30, 2014

 

		As Previously Reported 10-Q				BCF				Compensation				As Restated				Reclassify Discontinued Operations				As Restated and Reclassified
Revenues		$	1,641,094			$	—			$	—			$	1,614,094			$	(635,484	)		$	1,005,610
Cost of services provided			358,420				—				—				358,420				(358,420	)			—
Gross margin			1,282,674				—				—				1,282,674				(277,064	)			1,005,610
Operating expenses
Depreciation			35,040				—								35,040				(14,353	)			20,687
General and administrative			246,502				—								246,502				(82,419	)			164,083
Management fees			22,933				—								22,933				(68	)			22,865
Professional fees			20,844				—								20,844				(16,059	)			4,785
Rent			161,804				—								161,804				(89,309	)			72,495
Salaries and wages			684,743				—				312,295				997,041				(129,809	)			867,232
Total operating expenses			1,171,866				—				312,298				1,481,164				(332,217	)			1,152,147
Net Operating income (loss)		$	110,808			$	—			$	(312,298	)		$	(201,490	)		$	54,953			$	(146,537	)
Interest expense			(8,347	)			(10,521	)			—				(18,868	)			6,620				(12,248	)
Foreign exchange movement			—				—				—				—				—				—
Income (loss) from continuing operations		$	102,461			$	(10,521	)		$	(312,298	)		$	(220,358	)		$	61,573			$	(158,785	)
Loss from discontinued operations, net of tax			—				—				—				—				(61,573	)			(61,573	)
Net loss applicable to common shareholders		$	102,461			$	(10,521	)		$	(312,298	)		$	(220,358	)		$	—			$	(220,385	)
Accumulated other comprehensive loss
Foreign currency translation adjustment			(98,303	)			—				—				(98,303	)			—				(98,303	)
Total comprehensive income (loss)		$	4,158			$	(10,521	)		$	(312,298	)		$	(318,661	)		$	—			$	(318,661	)

 

GREENESTONE HEALTHCARE CORPORATION

Notes to the Unaudited Consolidated Financial Statements

 

1. Restatement of Previously Issued Financial Statements (continued)

 

GREENESTONE HEALTHCARE CORPORATION

Restated and reclassified Unaudited Income Statement

For the six months ended June 30, 2014

		As Previously Reported 10-Q				BCF				Compensation				As Restated				Reclassify Discontinued Operations				As Restated And Reclassified
Revenue		$	2,779,072			$	—			$	—			$	2,779,072			$	(1,163,253	)		$	1,615,819
Cost of services provided			646,893				—				—				646,893				(646,893	)			—
Gross margin			2,132,179				—				—				2,132,179				(516,360	)			1,615,819
Operating Expenses
Depreciation			69,637				—								69,637				(28,494	)			41,143
General and administrative			397,301				—								397,301				(143,432	)			253,869
Management fees			77,223				—								77,223				(9,115	)			68,108
Professional fees			83,374				—								83,374				(18,321	)			65,053
Rent			421,699				—								421,699				(170,899	)			250,800
Salaries and wages			1,393,975				—				624,596				2,018,571				(246,399	)			1,772,172
Total operating expenses			2,443,209				—				624,596				3,067,805				(616,660	)			2,451,145
Net operating income (loss)			(311,030	)			—				(624,596	)			(935,626	)			100,300				(835,326	)
Interest expense			(28,248	)			(43,071	)			—				(71,319	)			6,620				(64,699	)
Foreign exchange movement			(92,825	)			—				—				(92,825	)			—				(92,825	)
Income (loss) from continuing operations			(432,103	)			(43,071	)			(624,596	)			(1,099,770	)			106,920				(992,850	)
Loss from discontinued operations, net of tax			—				—				—				—				(106,920	)			(106,920	)
Net loss applicable to common stockholders			(432,103	)			(43,071	)			(624,596	)			(1,099,770	)			—				(1,099,770	)
Accumulated other comprehensive loss
Foreign currency translation adjustment			7,374				—				—				7,374				—				7,374
Total Comprehensive income (loss)		$	(424,729	)		$	(43,071	)		$	(624,596	)		$	(1,092,396	)		$	—			$	(1,092,396	)

GREENESTONE HEALTHCARE CORPORATION

Notes to the Unaudited Consolidated Financial Statements

 

1. Restatement of Previously Issued Financial Statements (continued)

 

GREENESTONE HEALTHCARE CORP

RESTATED AND RECLASSIFIED CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended June 30, 2014

 

		As Previously Reported 10-Q				BCF				Compensation				As Restated				Reclassify Discontinued Operations				As Restated And Reclassified
Operating Activities
Net loss – continuing operations		$	(432,103	)		$	(43,071	)		$	(624,596	)		$	(1,099,770	)		$	106,920			$	(992,850	)
Net loss – discontinued operations			—				—				—				—				(106,920	)			(106,920	)
			(432,103	)			(43,071	)			(624,596	)			(1,099,770	)			—				(1,099,770	)
Adjustments to reconcile net loss to net cash utilized by operating activities
Depreciation			69,637				—				—				69,637				(28,494	)			41,143
Stock issued for services			—				—				624,596				624,596				—				624,596
Amortization of beneficial conversion feature			—				43,071				—				43,071				—				43,071
Change in operating assets and liabilities
Decrease in accounts receivable			44,580				—				—				44,580				35,010				79,590
Increase in inventory			(19,349	)			—				—				(19,349	)			19,349				—
Decrease in prepaid expenses			6,091				—				—				6,091				1,215				7,306
Decrease in accounts payable and accrued liabilities			(108,643	)			—				—				(108,643	)			42,097				(66,546	)
Increase in accrued interest			13,689				—				—				13,689				—				13,689
Increase in taxes payable			242,413				—				—				242,413				(531	)			241,882
Increase in deferred revenue			2,651				—				—				2,651				—				2,651
Net cash used in operating activities – continuing operations			(181,034	)			—				—				(181,034	)			68,646				(112,388	)
Net cash used in operating activities – discontinued operations			—				—				—				—				(68,646	)			(68,646	)
Net cash used in operating activities			(181,034	)			—				—				(181,034	)			—				(181,034	)
Investing activities
Acquisition of fixed assets			(58,399	)			—				—				(58,399	)			7,751				(50,648	)
Net cash used in investing activities – continuing operations			(58,399	)			—				—				(58,399	)			7,751				(50,648	)
Net cash used in investing activities – discontinued operations			—				—				—				—				(7,751	)			(7,751	)
Net cash used in investing activities			(58,399	)			—				—				(58,399	)			—				(58,399	)

 

GREENESTONE HEALTHCARE CORPORATION

Notes to the Unaudited Consolidated Financial Statements

 

1. Restatement of Previously Issued Financial Statements (continued)

 

GREENESTONE HEALTHCARE CORP

RESTATED AND RECLASSIFIED CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended June 30, 2014 (continued)

 

		As Previously Reported 10-Q				BCF				Compensation				As Restated				Reclassify Discontinued Operations				As Restated And Reclassified
Financing activities
Change in restricted cash			540				—				—				540				—				540
Repayment of loans			(4,120	)			—				—				(4,120	)			—				(4,120	)
Proceeds from convertible notes payable			80,000				—				—				80,000				—				80,000
Proceeds from the sale of common stock			382,502				—				—				382,502				—				382,502
Proceeds from related party notes			(73,228	)			—				—				(73,228	)			140,429				67,201
Net cash generated by financing activities – continuing operations			385,694				—				—				385,694				140,429				526,123
Net cash used in financing activities – discontinued operations			—				—				—				—				(140,429	)			(140,429	)
Net cash used in financing activities			385,694				—				—				385,694				—				385,694
Effect of exchange rate on cash			7,374				—				—				7,374				—				7,374
Net change in cash			153,635				—				—				153,635				—				153,635
Beginning cash balance (overdraft)			(126,073	)			—				—				(126,073	)			—				(126,073	)
Ending cash balance (excluding restricted cash)			27,562				—				—				27,562				—				27,562

 

GREENESTONE HEALTHCARE CORPORATION

Notes to the Unaudited Consolidated Financial Statements

 

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 June 30, 2015, 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 clinics located in the regional municipality of Muskoka, Ontario, Canada.

 

The accompanying unaudited Consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim consolidated financial information and Rule 8-03 of Regulation S-X. Accordingly, these consolidated interim financial statements do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements.

 

All adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included in these unaudited consolidated interim financial statements. Operating results for the six month period presented are not necessarily indicative of the results that may be expected for any other interim period or for the full year. The balance sheet at December 31, 2014 has been derived from audited financial statements. The unaudited consolidated interim financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto for the year ended December 31, 2014.

 

3. Going concern

 

The Company’s consolidated interim financial statements have been prepared in accordance with US GAAP applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations in the normal course of business. As at June 30, 2015 the Company has a working capital deficiency of $2,972,976 and accumulated deficit of $19,914,883. 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. 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. There is no assurance that the Company will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on the Company’s financial condition. These consolidated interim financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue operations.

GREENESTONE HEALTHCARE CORPORATION

Notes to the Unaudited Consolidated Financial Statements

 

4. Significant accounting policies

 

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

  

a) Principals of consolidation and foreign currency translation

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

 

The Company’s subsidiaries functional currency is the Canadian dollar, 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 six month period ended June 30, 2015 closing rate at 0.8006 $US:$CAN, average rate at 0.8099 $US:$CAN and for the six month period ended June 30, 2014 closing rate at 0.9348 $US:$CAN, average rate at. 0.9115 $US:$CAN.

 

b) 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 in-patient addiction treatments proportionately over the term of the patient’s treatment.

 

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.

GREENESTONE HEALTHCARE CORPORATION

Notes to the Unaudited Consolidated Financial Statements

 

4. Significant accounting policies (continued)

 

c) Use of estimates

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

 

d) 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.

 

e) 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 $80,064 in restricted cash held by their bank to cover against the possibility of services not performed.

 

f) 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 June 30, 2015 and December 31, 2014, the Company has $7,406 and $27,294 of allowance for doubtful accounts, respectively.

 

g) 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 the Unaudited Consolidated Financial Statements

 

4. Significant accounting policies (continued)

 

g) Financial Instruments (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 June 30, 2015. The Company did not have any fair value adjustments for assets and liabilities measured at fair value on a non-recurring basis during the six month period ended June 30, 2015.

 

h) 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.

 

i) 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.

 

j) Income taxes

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

GREENESTONE HEALTHCARE CORPORATION

Notes to the Unaudited Consolidated Financial Statements

 

4. Significant accounting policies (continued)

 

k) 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 six months ended June 30, 2015.

 

Basic and diluted income per share was the same, at six months ended June 30 2015, as there were no common share equivalents outstanding.

 

l) Share based expenses

ASC 718-10 "Compensation - Stock Compensation" codified SFAS No. 123 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" which codified SFAS 123 and the Emerging Issues Task Force consensus in Issue No. 96-18 ("EITF 96-18"), "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services". Measurement of share-based payment transactions with non-employees shall be based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction should be determined at the earlier of performance commitment date or performance completion date.

 

m) 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

 

Except for rules and interpretive releases of the SEC under authority of federal securities laws and a limited number of grandfathered standards, the FASB Accounting Standards Codification™ (“ASC”) is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company.

GREENESTONE HEALTHCARE CORPORATION

Notes to the Unaudited Consolidated Financial Statements

 

5. Recently adopted accounting pronouncements (continued)

 

In June 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”. The update gives entities a single comprehensive model to use in reporting information about the amount and timing of revenue resulting from contracts to provide goods or services to customers. The proposed ASU, which would apply to any entity that enters into contracts to provide goods or services, would supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. Additionally, the update would supersede some cost guidance included in Subtopic 605-35, Revenue Recognition – Construction-Type and Production-Type Contracts. The update removes inconsistencies and weaknesses in revenue requirements and provides a more robust framework for addressing revenue issues and more useful information to users of financial statements through improved disclosure requirements. In addition, the update improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. The update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.

 

In April 2015, FASB issued Accounting Standards Update (“ASU”) No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, to simplify presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The ASU does not affect the recognition and measurement guidance for debt issuance costs. For public companies, the ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early application is permitted. This updated guidance is not expected to have a material impact on our results of operations, cash flows or financial condition.

 

Any new accounting standards, not disclosed above, that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.

 

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, June 30, 2015.

   

(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.

GREENESTONE HEALTHCARE CORPORATION

Notes to the Unaudited Consolidated Financial Statements

 

6. Financial instruments (continued)

 

(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 $2,972,976 and accumulated deficit of $19,914,883. 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. In the opinion of management, liquidity risk associated with bank overdraft of $10,282 (December 31, 2014: $Nil) is assessed as low. The Company ensures that financial liabilities are placed with a financial institution with a high credit rating in order to mitigate the risk. There is a concentration risk associated with the bank indebtedness since the Company uses one financial institution.

 

(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 has a low exposure to interest rate risk on its bank indebtedness as there is a balance of less than $20,000 at June 30, 2015. 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 June 30, 2015, a 5% depreciation or appreciation of the Canadian dollar against the U.S. dollar would result in an approximate $17,000 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.

 

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:

 

		June 30, 2015				December 31, 2014
Treatment program		$	84,188				175,585
Outpatient Services			—				16,541
Allowance for doubtful accounts			(7,406	)			(27,294	)
		$	76,782				164,832

GREENESTONE HEALTHCARE CORPORATION

Notes to the Unaudited Consolidated Financial Statements

 

8. Due from the sale of Subsidiary:

 

On December 17, 2014, the Company completed the sale of all the outstanding shares of the Endoscopy clinic, 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 price of C$1,282,001.87 included the assumption by the buyer of debt in the same amount as the sale price, which debt is owed by the Endoscopy clinic to the Company in the amount of C$895,495.60 and to the buyer of C$386,542.27. At closing, the buyer offset the assumed debt to the registrants of C$895,495.60 by US $277,500.000 through the cancellation of 2,408,268 shares of the Company’s common stock, for a net amount due to the Company of US$488,683 and $493,806 as of June 30, 2015 and December 31, 2014, respectively. The remainder of the assumed debt owed by the buyer to the Company was due June 30, 2015 but has been extended to December 31, 2015, and is in the form of an interest bearing note. Management has evaluated this receivable and believes that this receivable is collectible and no reserve is deemed necessary.

 

9. Fixed assets

 

		Cost				Accumulated Amortization				June 30, 2015				December 31, 2014
Computer equipment		$	21,279			$	14,157			$	7,122			$	7,352
Computer software			9,848				2,462				7,386				—
Furniture and equipment			338,335				238,182				100,153				114,306
Medical equipment			4,490				3,268				1,222				1,391
Vehicles			64,175				36,941				27,234				40,023
Leasehold improvements			142,793				63,401				79,392				93,471
		$	580,920			$	358,411			$	222,509			$	256,543

 

10. Auto Loan payable / Short term convertible loan

 

The Company has an automobile loan payable bearing interest at 4.49% with blended monthly payments of CAN$835 that matures March 2018. The loan is secured by the vehicle with a net book value as at June 30, 2015 of $23,267 Estimated principal re-payments are as follows:

 

	2015			$	3,581
	2016				7,407
	2017				7,746
	2018				1,993
				$	20,727

 

11. Short term convertible loan:

 

In May 2013 the company entered into a promissory note of up to $500,000 where the maturity date is one year after the lender provides the borrower with funds. A one time interest rate of 12% is applied in case of non payment within the initial 90 days. The note is convertible at the lesser of $0.30 or 70% of the lowest trading price in the 25 trading days prior to conversion. In 2014 the Company received $105,000 in proceeds and converted $127,076 into 2,245,991 shares of common stock. As of December 31, 2014 the net balance of this loan amounted to $30,258 comprised of a principal balance of $42,466 and a net debt discount of $12,208. During the six months ended June 30, 2015 the Company made cash payments amounting to $34,350 principal plus interest of $6,870 and converted $8,117 through the issuance of 300,000 shares of common stock to bring the balance of the loan to zero.

GREENESTONE HEALTHCARE CORPORATION

Notes to the Unaudited Consolidated Financial Statements

 

12. Taxes payable 

 

The Company has taxes, interest and penalties payable at June 30, 2015 and December 31, 2014 as follows:

 

		June 30, 2015				December 31, 2014
Harmonized sales tax		$	565,624			$	590,919
Payroll taxes			2,078,580				2,065,377
US tax penalties			150,000				150,000
		$	2,794,204			$	2,806,296

 

13. Related party transactions

 

A portion of elated party notes at June 30, 2015 is due to GreeneStone Clinic Inc. in the amount of $7,035 (December 31, 2014: $84,736). The Company is related to GreeneStone Clinic Inc. as it is controlled by one of the Company’s directors. The balance owing is non-interest bearing, not secured and has no specified terms of repayment.

 

The Company had management fees totaling $97,152 during the six-month period ended June 30, 2015 (June 30, 2014: $68,108) 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 six month period ended June 30, 2015, the Company had rent expense of $158,178 (June 30, 2014: $233,433) 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 $0.01 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 47,738,855 issued and outstanding common shares as at June 30, 2015. At December 31, 2014 to the Company had 46,131,765 issued and outstanding common shares.

 

The Company issued 300,000 shares of its common stock to satisfy its obligations under an aggregate principal of $8,117 of convertible promissory notes for the six month period ended June 30, 2015.

GREENESTONE HEALTHCARE CORPORATION

Notes to the Unaudited Consolidated Financial Statements

 

14. Stockholders’ deficit (continued)

 

The Company adjusted previously issued 2,909 common shares pursuant to convertible note conversions to reflect currency exchange differences.

 

The Company issued 250,000 shares of its common stock as compensation for $25,000 of services for the six month period June 30, 2015.

 

The Company has a total of 106,000 issued and outstanding series “B” preferred shares as at June 30, 2015. At December 31, 2014 to the Company had nil issued and outstanding series “B” preferred shares.

 

The holders of the 106,000 Series “B” preferred shares converted their shares into 1,060,000 common shares on April 30, 2015 at a conversion factor of 10:1.

 

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, 2014			$	6,780,000			$	0.139
	Granted			$	—			$	—
	Cancelled/forfeited				—				—
	Expired			$	—			$	—
	Exercised				—				—
	Outstanding at December 31, 2014 and June 30, 2015			$	6,780,000			$	0.139

  

15. Income taxes

 

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

 

The Company has not taken a tax position that, if challenged, would have a material effect on the financial statements for the six month period ended June 30, 2015, applicable under ASC 740. As a result of the adoption of ASC 740, the Company did not recognize any adjustment to the liability for uncertain tax position and therefore did not record any adjustment to the beginning balance of accumulated deficit on the balance sheet.

GREENESTONE HEALTHCARE CORPORATION

Notes to the Unaudited Consolidated Financial Statements

 

15. Income taxes (continued)

 

The components of the Company’s future tax asset as at June 30, 2015 and December 31, 2015 are as follows:

 

		June 30, 2015				December 31, 2014
Net operating loss carry forward		$	19,914,883			$	19,566,029
Valuation allowance			(19,914,883	)			(19,566,029	)
Net future tax asset		$	—			$	—

 

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

 

		June 30, 2015				December 31, 2014
Tax benefit at statutory rate		$	122,099			$	570,870
Valuation allowance			(122,099	)			(570,870	)
Net future tax asset		$	—			$	—

 

The Company did not pay any income taxes during the six month period ended June 30, 2015 and the year ended December 31, 2014.

 

The net federal operating loss carry forwards will expire in 2024 through 2034. This carry forward may be limited upon the consummation of a business combination under IRC Section 381.

 

16. Subsequent events

 

Subsequent to June 30, 2015, the Company extended the due date of the debt receivable of $488,683 owed by the Buyer of the Endoscopy Clinic from June 30, 2015 to December 31, 2015. In consideration for the extension granted to repay the debt, the Buyer reduced the rental charged to our wholly owned subsidiary, GreeneStone Clinic Muskoka, Inc, to $2,000 per month and extended the lease to December 31, 2015. Management has evaluated the debt receivable and believes that it is collectible and no reserve is deemed necessary.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Forward-Looking Statements

 

This quarterly report on Form 10-Q 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 quarter ended June 30, 2015.

 

Plan of Operation

 

During the next twelve months, the Company plans to continue its operations as a provider of addiction treatment services, and to expand by way of acquisition of new facilities.

 

The Company believes that it will need a minimum of $3,000,000 to cover its planned operations over the next 12 months. This estimate includes (i) $250,000 for marketing and (ii) 2,750,000 for tax obligations.

 

Results of Operations

 

For the three Months Ended June 30, 2015, Compared to the Three Months Ended June 30, 2014

 

Revenue

 

During the three months ended June 30, 2015, revenues decreased to $947,935 from $1,005,610 during the three months ended June 30, 2014, a decrease of $57,675. This decrease is due to the Cdn – USD exchange rate as the company receives its revenues in Canada dollars and the 6 month exchange average is down 10 cents versus prior year.

 

Operating Expenses

 

Operating expenses for the three months ended June 30, 2015, were $829,340, compared to $1,152,147 for the three months ended June 30, 2014, a decrease of $322,807. The 2014 expenses included $312,298 compensation expense for options issued to a former employee. There was no comparable expense during 2015. Operating expenses for the three months ended June 30, 2015, primarily consisted of salaries and wages to medical support staff of $ 469,233; rent payments of $ 90,637 and general and administrative expenses of $ 120,704.

Net Income (loss) from Continuing Operations

 

During the three months ended June 30, 2015, the net income from continuing operations was $6,775, compared to a loss of $158,785 during the three months ended June 30, 2014, an increase of $165,560. This increase is due to lower cost base.

 

Net Loss from Discontinued Operations

 

During the three months ended June 30, 2015, the net loss from discontinued operations was $nil, compared to a loss of $61,573 during the three months ended June 30, 2014.

 

For the Six Months Ended June 30, 2015, Compared to the Six Months Ended June 30, 2014

 

Revenue

 

During the six months ended June 30, 2015, revenues increased to $1,628,646 from $1,615,819 during the six months ended June 30, 2014, an increase of $12,827. This increase is due to higher intakes at our treatment facility.

 

Operating Expenses

 

Operating expenses for the six months ended June 30, 2015, were $1,814,139, compared to $2,451,145 for the six months ended June 30, 2014, a decrease of $637,006. The 2014 expenses included $624,596 compensation expense for options issued to a former employee. There was no comparable expense during 2015. Operating expenses for the six months ended June 30, 2015, primarily consisted of salaries and wages to medical support staff of $913,705; rent payments of $179,392 and general and administrative expenses of $418,903.

 

Net loss from Continuing Operations

 

During the six months ended June 30, 2015, the net loss from continuing operations was $348,854, compared to a loss of $992,850 during the six months ended June 30, 2014, a decrease of $643,996. This increase is due to lower cost base.

 

Net Loss from Discontinued Operations

 

During the six months ended June 30, 2015, the net loss from discontinued operations was $nil, compared to a loss of $106,920 during the six months ended June 30, 2014.

 

Liquidity and Capital Resources

 

The following table summarizes working capital at June 30, 2015

 

		June 30, 2015
Current assets		$	600,240
Current liabilities			3,573,215
Working capital deficit		$	(2,972,975	)

  

Over the next twelve months, we believe that our existing capital combined with our anticipated cash flow from operations will be sufficient to sustain our current operations. It is anticipated that we will need to sell additional equity and/or debt securities in the event we locate potential mergers and/or acquisitions and 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, the Company’s liquidity risk is assessed as high and remains unchanged from the prior year.

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

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

 

Item 1A. Risk Factors.

 

Not applicable to a smaller reporting company.

 

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

 

On March 31, 2015, we issued an aggregate of 7,850 shares of our common stock to four (4) holders of convertible notes as an adjustment to the number of shares those holders received for a prior conversion of their notes. The number of shares that were issued to the holders was based on a conversion price that was in U.S. dollars and the principal amount of the note being converted was in Canadian Dollars. The adjustment accounted for increase in the principal amount when it was changed into U.S. dollars.

 

On March 31, 2015, the Company issued 250,000 shares of its common stock to consultant under a consulting agreement. The services were valued at $25,000.

 

On March 5, 2015, the Company issued an aggregate of 106,000 shares of its Series B Convertible Preferred Stock (“Series B Preferred”) to two principals of its outside legal counsel. The shares of the Series B Preferred are convertible into 1,060,000 shares of Common Stock. The issuance of the Series B Preferred was issued for professional services valued at $31,800.

 

On January 14, 2015, the Company issued 300,000 shares of its common stock to JMJ Financial for the conversion of $3,000 of principal amount of a convertible note held by JMJ.

 

On April 30, 2015, the series “B” shareholders converted their entire shareholding of 106,000 Series “B” shares into 1,060,000 common shares at a conversion ratio of 10:1.

 

The shares of the Company’s common stock issued during the six month period ended June 30, 2015 as described above qualified for an exemption under Section 4(a)(2) of the Securities Act of 1933, because the issuance of shares by the Company did not involve a public offering. The offering was not a “public offering” as defined in Section 4(a)(2) due to the insubstantial number of persons involved in each of the issuances, size of the offering, manner of the offering and number of shares offered. Based on an analysis of the above factors, the Company has met the requirements to qualify for exemption under Section 4(a)(2) of the Securities Act for the above securities transaction.

 

Item 3. Defaults Upon Senior Securities.

 

There were no defaults upon senior securities during the six months ended June 30, 2015.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

On August 14, 2015, William L. Sklar vacated his position as the Company’s Chief Financial Officer and the Company’s board of directors held a special meeting to appoint Shawn E. Leon to serve as the interim Chief Financial Officer until a permanent replacement could be found.

 

There is no other information required to be disclosed under this item which was not previously disclosed.

Item 6. Exhibits.

 

Exhibit No.		Description
31.1		Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of 2002 *
32.1		Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
101.INS		XBRL Instance *
101.SCH		XBRL Taxonomy Extension Schema *
101.CAL		XBRL Taxonomy Extension Calculation *
101.DEF		Taxonomy Extension Definition *
101.LAB		Taxonomy Extension Labels *
101.PRE		Taxonomy Extension Presentation *

 

* filed herewith

 

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

			GREENESTONE HEALTHCARE CORP.
Date:	August 19, 2015		By:	/s/ Shawn E. Leon
				Name:		Shawn E. Leon
				Title:		Chief Executive Officer
						Chief Financial Officer
						(Principal Executive Officer)
						(Principal Financial and Principal Accounting Officer)