ETHEMA HEALTH Corp - Annual Report: 2014 (Form 10-K)

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

GreeneStone Healthcare Corporation

(Exact name of registrant as specified in its charter)

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(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.

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:

Sunny J. Barkats, Esq.

JSBarkats, PLLC

18 East 41^st Street, 14^th 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

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.

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 conversion. In 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).

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.

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)

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

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

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: