ETHEMA HEALTH Corp - Quarter Report: 2015 September (Form 10-Q)

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: September 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)

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:

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 November 9, 2015, there were 47,738,855 shares outstanding of the registrant’s common stock.

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”):

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 nine months ended September 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 nine months ended September 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 Form 10-Q affected by the restatement adjustments reflect such amounts as restated.

Item 1. Financial Statements.

GREENESTONE HEALTHCARE CORPORATION

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

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

TABLE OF CONTENTS

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

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

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

GREENESTONE HEALTHCARE CORPORATION

Consolidated Statements of Cash Flows

(Expressed in U.S. $)

(Unaudited)

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 nine months ended September 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.

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 September 30, 2014 and the restated Consolidated Statements of Operations and Cash Flows for the three and nine months ended September 30, 2014 are presented below:

GREENESTONE HEALTHCARE CORPORATION

Notes to the Unaudited Consolidated Financial Statements

1. Restatement of Previously Issued Financial Statements (continued)

Unaudited Restated Consolidated Balance Sheet as at September 30, 2014

 GREENESTONE HEALTHCARE CORPORATION

Notes to the Unaudited Consolidated Financial Statements

1. Restatement of Previously Issued Financial Statements (continued)

Unaudited Restated Consolidated Income Statement for the Three Months Ended September 30, 2014

GREENESTONE HEALTHCARE CORPORATION

RESTATEMENT OF INCOME STATEMENT

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2014

GREENESTONE HEALTHCARE CORPORATION

Notes to the Unaudited Consolidated Financial Statements

1. Restatement of Previously Issued Financial Statements (continued)

Unaudited Restated Consolidated Income Statement for the Nine Months Ended September 30, 2014

GREENESTONE HEALTHCARE CORPORATION

RESTATEMENT OF INCOME STATEMENT

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014

GREENESTONE HEALTHCARE CORPORATION

Notes to the Unaudited Consolidated Financial Statements

1. Restatement of Previously Issued Financial Statements (continued)

Unaudited Restated Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2014

GREENESTONE HEALTHCARE CORPORATION

RESTATEMENT OF CASH FLOW STATEMENT

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014

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 September 30, 2015, the Company owns 100% of the outstanding shares of Greenstone Clinic Muskoka Inc., which was incorporated in 2010 under the laws of the Province of Ontario, Canada. Greenstone 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 nine 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 September 30, 2015 the Company has a working capital deficiency of $2,673,184 and accumulated deficit of $19,868,367. 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.

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.

GREENESTONE HEALTHCARE CORPORATION

Notes to the Unaudited Consolidated Financial Statements

4. Significant accounting policies (continued)

a) Principals of consolidation and foreign currency translation

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

The Company’s subsidiary 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:

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:

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:

In particular, the Company recognizes:

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:

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 $74,660 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 September 30, 2015 and December 31, 2014, the Company has $nil 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.

GREENESTONE HEALTHCARE CORPORATION

Notes to the Unaudited Consolidated Financial Statements

4. Significant accounting policies (continued)

g) Financial instruments (continued)

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.

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 September 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 nine month period ended September 30, 2015.

h) Fixed assets

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

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.

GREENESTONE HEALTHCARE CORPORATION

Notes to the Unaudited Consolidated Financial Statements

4. Significant accounting policies (continued)

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.

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 nine months ended September 30, 2015.

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.

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 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.

 In August 2015, FASB issued Accounting Standards Update ("ASU..) No.2015-14, ..Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date" defers the effective date ASU No. 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should appl) the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. All other entities may apply the guidance in ASU o. 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities also may apply the guidance in Update 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in v.hich the entit, first applies the guidance in ASU o. 2014-09. We are current!, 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 September 2015, FASB issued Accounting Standards Update (..ASU"") o. 2015-16, "'Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments" requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this Update require that the acquirer record. in the same period·s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendments should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this Update v. ith earlier application permitted for financial statements that have not been issued. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The amendments should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this Update with earlier application permitted for financial statements that have not yet been made available for issuance. We are currently reviewing the provisions of this ASU to determine if there will be an, 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, September 30, 2015.

GREENESTONE HEALTHCARE CORPORATION

Notes to the Unaudited Consolidated Financial Statements

6. Financial instruments (continued)

(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 Greenstone Clinic Muskoka Inc. is mitigated due to the number of customers with balances outstanding, credit checks performed on our customers and frequent reviews of receivables to ensure timely collection.

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

(b) Liquidity risk capital

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 $2,673,184 and accumulated deficit of $19,868,367. As disclosed in note 3 above, the Company may be required to raise additional 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. 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 no bank indebtedness at September 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 September 30, 2015, a 5% depreciation or appreciation of the Canadian dollar against the U.S. dollar would result in an approximate $8,400 increase or decrease in the Company’s after-tax net loss from continuing operations. The Company has not entered into any hedging agreements to mediate this risk. In the opinion of management, currency risk is assessed as low, material and remains unchanged from the prior year.

GREENESTONE HEALTHCARE CORPORATION

Notes to the Unaudited Consolidated Financial Statements

6. Financial instruments (continued)

iii. Other price risk

Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. In the opinion of management, the Company is not exposed to this risk and remains unchanged from the prior year.

7. Accounts receivable

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

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 CDN$1,282,002, comprised of the agreed purchase price of CDN$1,250,000 and the acquisition of net assets at closing of CDN$32,002 The sale price of CDN$1,282,002 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 CDN$895,460 and to the buyer of CDN$386,542. At closing, the buyer offset the assumed debt to the registrants of CDN$895,460 by CDN$277,500 through the cancellation of 2,408,268 shares of the Company’s common stock, for a net amount due to the Company of CDN$617,960. This debt is owed by the buyer to the Company in the form of an interest bearing note with a coupon of 5% per annum. The note was originally due on June 30, 2015 which was recently extended to December 31, 2015. The amount outstanding of CDN$617,960 was revalued at US$461,369 and US$493,806 as of September 30, 2015 and December 31, 2014, respectively. The interest due on the note amounted to CDN$29,628 as of September 30, 2015 and was revalued at US$22,120 as of September 30, 2015. Management has evaluated this receivable and believes that this receivable is collectible and no reserve is deemed necessary.

The amount due on the sale if subsidiary is as follows:

GREENESTONE HEALTHCARE CORPORATION

Notes to the Unaudited Consolidated Financial Statements

9. Fixed assets

Fixed assets consist of the following:

10. Loans payable

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 a vehicle with a net book value as at September 30, 2015 of $ 13,566.

Estimated principal re-payments are as follows:

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 nine months ended September 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 repay the loan in full.

GREENESTONE HEALTHCARE CORPORATION

Notes to the Unaudited Consolidated Financial Statements

12. Taxes payable

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

The Company intends to raise funds to settle the outstanding tax liabilities. There is no guarantee that we will raise sufficient funds to  settle the outstanding liability within the next twelve months.

13. Related party transactions

A portion of related party notes is due to Greenstone Clinic Inc. in the amount of $66,878 and $84,736 as of September 30, 2015 and December 31, 2014, respectively. The Company is related to Greenstone 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 also has a receivable balance of $48,400 due from one of the Company’s directors and a short-term receivable from the Endoscopy Clinic, which was recently sold, of $9,037. Both of these related party receivables are non-interest bearing, and have no specific repayment terms

The Company had management fees totaling $96,705 and $68,163 during the nine months ended September 30, 2015 and 2014, respectively to the director (Greenstone 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. The Company had rental expense amounting to $263,568 and $333,639 during the nine months ended September 30, 2015 and 2014, respectively. 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

Common shares

Authorized

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. The amendment was approved by the Colorado Secretary of State on March 26, 2013.

Issued and outstanding

The Company has a total of 47,738,855 and 46,131,764 issued and outstanding common shares as at September 30, 2015 and December 31, 2014, respectively.

GREENESTONE HEALTHCARE CORPORATION

Notes to the Unaudited Consolidated Financial Statements

14. Stockholders’ deficit (continued)

The Company issued 300,000 shares of its common stock to satisfy its obligations under the conversion of an aggregate principal amount of $8,117 of convertible promissory notes for the nine months ended September 30, 2015.

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 rendered for the nine months ended September 30, 2015.

The holders of 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.

Preferred shares

Authorized

On March 25, 2013, the Company, under the certificate of amendment filed above also to authorize three million (3,000,000) series A convertible preferred shares with a par value of $0.01 per share, and also to authorize ten million (10,000,000) series B convertible preferred shares, par value $0.01 per share. Each series B convertible preferred share is convertible into 10 Common shares. The amendment was approved by the Colorado Secretary of State on March 26, 2013.

Issued and outstanding

The Company had no issued and outstanding preferred shares as at September 30, 2015.

The holders of 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.

The options outstanding are as follows as of September 30, 2015:

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.

GREENESTONE HEALTHCARE CORPORATION

Notes to the Unaudited Consolidated Financial Statements

15. Income taxes (continued)

The Company has not taken a tax position that, if challenged, would have a material effect on the financial statements for the nine months ended September 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.

The components of the Company’s future tax asset as at September 30, 2015 and December 31, 2014 are as follows:

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

The Company did not pay any income taxes during the nine month period ended September 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. 

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 September 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 September 30, 2015 and the three months ended September 30, 2014

Revenue

During the three months ended September 30, 2015, revenues decreased to $848,767 from $1,197,121 during the three months ended September 30, 2014, a decrease of $348,354. This decrease is primarily due to the Cdn$ – US$ exchange rate as the Company receives its revenues in Canadian dollars and the nine month exchange average is down 12 cents versus prior year, in addition management is focused on generating more profitable revenues.

Operating Expenses

Operating expenses for the three months ended September 30, 2015, were $710,558, compared to $989,608 for the three months ended September 30, 2014, a decrease of $279,050, the decrease can be attributed to; i) a decrease in the average exchange rate between the Canadian Dollar and the US Dollar of approximately $130,000; and ii) a decrease in salaries expense and general administrative expenses associated with the Muskoka clinic.

Other Expense

Other expense consist of the elimination of minor receivables balances on the disposal of the Endoscopy clinics in the prior year.

Interest income

Interest income represents the interest receivable on the note receivable on the sale of the Endoscopy unit during the prior year.

Interest Expense

Interest expense primarily consists of an accrual for interest on the outstanding payroll tax liability.

Foreign exchange movements

Foreign exchange movements arise due to the revaluation of balances between Greenstone Healthcare Corporation and its wholly owned company, Greenstone Clinic Muskoka and a receivable from the sale of the Endoscopy clinic which is denominated in Canadian Dollars. The charge for the current quarter is due to the relative strength of the US Dollar.

Net Income (loss) from Continuing Operations

The net income from continuing operations was $46,516, compared to $197,693 during the three months ended September 30, 2015 and 2014, respectively, a decrease of $151,177 due to the reasons discussed above.

Net Loss from Discontinued Operations

During the three months ended September 30, 2015, the net loss from discontinued operations was $nil, compared to a loss of $102,241 during the three months ended September 30, 2014.

For the Nine Months Ended September 30, 2015, Compared to the Nine Months Ended September 30, 2014

Revenue

Revenues were $2,477,413 and $2,812,940 for the nine months ended September 30, 2015 and 2014, respectively, a decrease of $335,527. The decrease in revenues is primarily affected by the relative strength of the US Dollar over the Canadian $, with revenues from the clinic’s core line of business actually increasing 5% in Canadian Dollars, offset by a revenue decline of approximately CDN$120,000 in the aftercare line of business.

Operating Expenses

Operating expenses for the nine months ended September 30, 2015, were $2,524,698, compared to $3,533,579 for the nine months ended September 30, 2014, a decrease of $1,008,881. The 2014 expenses included $624,596 compensation expense for options issued to a former employee. There was no comparable expense during 2015, the remainder of the decrease is due to lower salary and general and administrative costs, and the effects of the relative strength of the US dollar over the prior year.

Other Expense

Other expense consist of the elimination of minor receivables balances on the disposal of the Endoscopy clinics in the prior year.

Interest income

Interest income represents the interest receivable on the note receivable on the sale of the Endoscopy unit during the prior year.

Interest Expense

Interest expense primarily consists of an accrual for interest on the outstanding payroll tax liability.

Foreign exchange movements

Foreign exchange movements arise due to the revaluation of balances between Greenstone Healthcare Corporation and its wholly owned company, Greenstone Clinic Muskoka and a receivable from the sale of the Endoscopy clinic which is denominated in Canadian Dollars. The charge for the current quarter is due to the relative strength of the US Dollar.

Net loss from Continuing Operations

The net loss from continuing operations was $302,338, compared to $1,004,318 during the nine months ended September 30, 2015 and 2014, respectively, a decrease of $701,980 due to the reasons discussed above.

Net Loss from Discontinued Operations

During the nine months ended September 30, 2015, the net loss from discontinued operations was $nil, compared to a loss of $200,161 during the nine months ended September 30, 2014.

Liquidity and Capital Resources

The following table summarizes working capital at September 30, 2015

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 nine month period ended September 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 nine months ended September 30, 2015.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

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

Item 6. Exhibits.

* 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.