ETHEMA HEALTH Corp - Quarter Report: 2016 September (Form 10-Q)

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8. Related Party Transactions

Greenstone Clinic Inc.

As of September 30, 2016, and December 31, 2015, the Company had a payable of $510 and $5,284, respectively. Greenstone Clinic Inc., is controlled by one of the Company’s directors. The balance payable is noninterest bearing, not secured and has no specific repayment terms.

The Company incurred management fees from Greenstone Clinic, Inc., totaling $45,742 and $Nil and $92,319 and $96,705 for the three months and nine months ended September 30, 2016 and 2015, respectively.

1816191 Ontario

As of September 30, 2016, and December 31, 2015, the Company had a receivable of $17,345 and a payable of $(22,305), respectively, to 1816191 Ontario, the Endoscopy Clinic, which was sold at the end of the prior year. The receivable and payable is noninterest bearing, and has no specific repayment terms.

Shawn E. Leon

As of September 30, 2016, and December 31, 2015 the Company had a payable of $Nil and $159,551, respectively to Shawn E. Leon, a director and CEO of the Company. The balance payable is noninterest bearing and have no fixed repayment terms.

Cranberry Cove Holdings Ltd.

The Company entered into an agreement to lease premises from Cranberry Cove Holdings Ltd. at market related terms. The Company had rental expense amounting to $100,203 and $84,176 and $271,364 and $263,568 for the three months and nine months ended September 30, 2016 and 2015, respectively. Cranberry Cove Holdings Ltd. is related to the Company by virtue of its shareholder owning 1816191 Ontario.

As of September 30, 2016, and December 31, 2015, the Company owed Cranberry Cove Holdings $37,942 (CAD $49,767) and $87,356 (CAD$120,908).

All related party transactions occur in the normal course of operations and in terms of agreements entered into between the parties.

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

9. Stockholders’ deficit

The Company issued 1,000,000 common shares valued at $50,000 to a third party in terms of an investor relations consulting agreement entered into on June 17, 2016.

In terms of the short term loan entered into, as disclosed under note 8 above, on April 13, 2016, the Company issued 3,703,700 five year warrants exercisable at $0.03 per share, these warrants have a cashless exercise option.

The movement in warrants outstanding is summarized below:

The following table summarizes information about warrants outstanding at September 30, 2016:

* In terms of an agreement entered into with an investor relations company, 300,000 warrants were to be issued as part of the Investor Relations Agreement. These warrants have not been issued as yet, therefore the warrant terms are uncertain.

As of September 30, 2016, the 5,503,700 warrants were all vested, there were no unrecognized compensation costs related to these warrants and the intrinsic value of the warrants as of September 30, 2016 is $8,001.

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

9. Stockholders’ deficit (continued)

Our board of directors adopted the GreeneStone Healthcare Corporation 2013 Stock Option Plan (the “Plan”) to promote our long-term growth and profitability by (i) providing our key directors, officers and employees with incentives to improve stockholder value and contribute to our growth and financial success and (ii) enable us to attract, retain and reward the best available persons for positions of substantial responsibility. A total of 10,000,000 shares of our common stock have been reserved for issuance upon exercise of options granted pursuant to the Plan. The Plan allows us to grant options to our employees, officers and directors and those of our subsidiaries; provided that only our employees and those of our subsidiaries may receive incentive stock options under the Plan. We have granted a total of 480,000 options as of September 30, 2016 under the Plan.

No options were issued, exercised or cancelled for the period under review.

The following table summarizes information about options outstanding at September 30, 2016.

As of September 30, 2016, there was no unrecognized compensation costs related to these options and the intrinsic value of the options is $0.

10. Net income per common share

For the three months ended September 30, 2016 the computation of basic and diluted earnings per share is as follows:

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended September 30, 2016 the computation of basic and diluted earnings per share is as follows:

For the three months and nine months ended September 30, 2016, options to purchase 480,000 shares of common stock and warrants to purchase 5,203,700 shares of common stock were excluded from the calculation of diluted earnings per share as the option and warrant exercise prices were greater than the average market price of the common shares.

For the three months and nine months ended September 30, 2015, the following options and warrants and convertible preferred stock were excluded from the computation of diluted net loss per shares as the result of the computation was anti-dilutive:

11. Commitments and contingencies

The future minimum annual rental payments under the operating lease are estimated as follows, using the quarter end exchange rate of CAD $1 equals US $0.7624:

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company is delinquent in paying harmonized sales tax, filing and paying payroll taxes and may also be subject to US taxation and penalties.

As of September 30, 2016, the Company had estimated Canadian tax liabilities outstanding of $2,530,946, which may result in the Canadian tax authorities placing liens on the Company bank accounts which would impact on the Company’s ability to operate. The Company has also provided for US penalties of $200,000 due to noncompliance with the filing of certain required returns. The actual liability may be higher due to interest and penalties assessed by these taxing authorities.

On May 17, 2016, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”), a Management Services Agreement (the “Management Agreement” and a Commercial Real Estate Contract to acquire the business and substantially all of the assets of Seastone of Delray, LLC (“Seastone”).

Seastone’s business is primarily the practice of providing addiction treatment health care services.

Pursuant to the terms of the Management Agreement, the Company began operating Seastone’s Business for a 90 day period commencing on July 1, 2016. During the Management Period, the Company is entitled to the revenues from the Business and will pay Seastone $20,000 per month to cover certain costs related to the Business, which shall increase to $28,000 per month if the Management Agreement is extended beyond 90 days. The Management Agreement may be terminated by either party if the Purchase Agreement does not close by September 15, 2016. The purchase agreement is expected to close in November 2016.

The Company entered into a commercial real estate contract with Seastone Condominiums of Delray, LLC and 810 Andrews, LLC, both Florida limited liability companies to acquire certain real property.

The purchase price for the Transaction is $6,150,000, will be funded by a purchase money first mortgage in the amount of $3,750,000 at 5% per annum payable at $15,000 per month for three years; and $3,150,000 in cash. The Company has deposited $110,000 in escrow.

The closing of the Transaction is anticipated to be during November, 2016 and is contingent upon (i) the Company obtaining the requisite licenses from the appropriate governmental agencies for the operation of Seastone’s Business.

From time to time, the Company and its subsidiaries enter into legal disputes in the ordinary course of business. The Company believes there are no material legal or administrative matters pending that are likely to have, individually or in the aggregate, a material adverse effect on its business or results of operations.

12. Income taxes

The Company is not current in its tax filings as of September 30, 2016.

13. Subsequent events

The Company has evaluated subsequent events through the date of the consolidated financial statements were available to be issued and has concluded that no such events or transactions took place that would require disclosure herein.

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

This quarterly report on Form 10Q and other reports filed by Greenstone 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, 2015.

Plan of Operation

During the next twelve months, the Company plans to continue and expand its operations as a provider of addiction and aftercare treatment services. The Company plans to focus on the growth of its addiction and aftercare treatment units while simultaneously reducing costs in current 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 approximately 48,000 square feet of buildings on 43 acres and is adjacent to Lake Muskoka in Ontario. The Company expects this deal to close once the appropriate funding has been raised.

The company entered into an asset purchase, a management agreement and a commercial real estate agreement to acquire the business and substantially all of the assets of Seastone of Delray, LLC, primarily a practice providing addiction treatment health care services.

Results of Operations

For the three months ended September 30, 2016 and the three months ended September 30, 2015.

Revenue

Revenues amounted to $1,076,303 and $848,767 for the three months ended September 30, 2016 and 2015, respectively, an increase of $227,536 or 26.8%. We operate in Canada and our functional currency is the Canadian Dollar. Our revenue, in Canadian Dollars increased to CAD $1,404,475 from CAD $1,110,665 for the three months ended September 30, 2016 and 2015, respectively, an increase of CAD $293,810 or 26.5%. The increase in revenue in CAD $ terms is primarily due to the Canadian Government making use of the treatment facility to treat members of the armed forces for drug and alcohol addiction. The services offered by the facility is being utilized by several armed forces bases. The US $ has weakened slightly against the CAD $ over the comparative period in the prior year, from $0.7642 to $0.7663 resulting in a slightly higher revenue growth in US $ terms compared to the revenue growth in CAD $ terms. The Company believes that revenue in CAD $ will continue its current trend over the prior year.

Operating Expenses

Operating expenses amounted to $878,500 and $710,558 for the three months ended September 30, 2016 and 2015, respectively, an increase of $167,942 or 23.6%.

Operating income

Operating income amounted to $197,803 and $138,209 for the three months ended September 30, 2016 and 2015, respectively, a net increase of $59,594 or 43.1%, due to improved revenues offset by an increase in operating expenditure as discussed above.

Other income (expense)

Other income of $19,451 in the current period represents proceeds received of $60,000 for the disposal of oil rights related to GreeneStone’s previous operations, net of $40,549 of expenses incurred on the pending acquisition of Seastone of Dealray.

Interest expense

Interest expense amounted to $48,629 and $30,622 for the three months ended September 30, 2016 and 2015, respectively, an increase of $18,007 or 58.8%. The increase is due to a short term loan taken out during April 2016, the balance of the interest is primarily due to interest accrued on the outstanding Canadian tax liabilities.

Debt Discount

The debt discount of $39,988 represents the amortization of the value of the warrants issued in terms of the short term loan agreement entered into and an original issue discount attached to that loan.

Foreign exchange movements

Foreign exchange movements of $8,334 and $(73,157) for the three months ended September 30, 2016 and 2015 respectively, represents the realized exchange gain and loss, respectively, on monetary assets and liabilities settled during each period as well as mark to market adjustments on monetary assets and liabilities reflected on the balance sheet and denominated in Canadian Dollars.

Net Income

Net Income amounted to $136,971 and $46,516 for the three months ended September 30, 2016 and 2015, respectively, an increase of $90,455, primarily due to the increased profitability from operations on higher revenues and the additional $60,000 of other income on the disposal of oil rights, offset by the expenses incurred on the pending acquisition of Seastone of Delray.

For the nine months ended September 30, 2016 and the nine months ended September 30, 2015.

Revenue

Revenues amounted to $2,923,524 and $2,477,413 for the nine months ended September 30, 2016 and 2015, respectively, an increase of $446,111 or 18.0%. We operate in Canada and our functional currency is the Canadian Dollar. Our revenue, in Canadian Dollars increased to CAD $3,852,947 from CAD $3,120,225 for the nine months ended September 30, 2016 and 2015, respectively, an increase of CAD $732,722 or 23.5%. The increase in revenue in CAD $ terms is primarily due to the Canadian Government making use of the treatment facility to treat members of the armed forces for drug and alcohol addiction. The services offered by the facility is being utilized by several armed forces bases. The US $ has strengthened against the CAD $ over the comparative period in the prior year, from $0.7946 to $0.7574 resulting in a lower revenue growth in US $ terms compared to the revenue growth in CAD $ terms. The Company believes that revenue in CAD $ will continue its current trend over the prior year.

Operating Expenses

Operating expenses amounted to $2,457,203 and $2,524,698 for the nine months ended September 30, 2016 and 2015, respectively, a decrease of $67,495 or 2.7%.

Operating income (loss)

Operating income (loss) amounted to $466,321 and $(47,285) for the nine months ended September 30, 2016 and 2015, respectively, a net increase of $513,606 or 1,086.2%, due to improved revenues and a reduction in overall operating expenditure as discussed above.

Other income (expense)

Other income of $53,000 in the current year represents proceeds of $70,000 from the sale of oil rights related to GreeneStone’s previous operations and proceeds received of $27,109 from an insurance claim relating to building damage, offset by expenses incurred on the pending acquisition of Seastone of Delray.

Interest expense

Interest expense amounted to $132,474, and $121,563 for the nine months ended September 30, 2016 and 2015, respectively, an increase of $10,911 or 9.0%. The increase is primarily related to interest on short term loans raised in the current period. The balance of the interest is primarily due to interest accrued on the outstanding Canadian tax liabilities.

Debt Discount

The debt discount of $73,250 represents the amortization of the value of the warrants issued in terms of the short term loan agreement entered into and an original issue discount attached to that loan.

Foreign exchange movements

Foreign exchange movements $35,789 and $(145,576) for the nine months ended September 30, 2016 and 2015 respectively, represents the realized exchange gain and (loss) on monetary assets and liabilities settled during each period as well as mark to market adjustments on monetary assets and liabilities reflected on the balance sheet and denominated in Canadian Dollars.

Net Income (loss)

Net Income (loss) amounted to $349,386 and $(302,238) for the nine months ended September 30, 2016 and 2015, respectively, an increase of $651,624, primarily due to the reasons discussed above.

Contingency related to outstanding tax liabilities:

The Company is delinquent in filing previous payroll tax returns resulting in taxes, interest and penalties payable at September 30, 2016 and December 31, 2015. As of September 30, 2016, and December 31, 2015 as part of Taxes Payable, the Company has tax liabilities of approximately $2,530,946 and $2,490,506, 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 the taxing authorities.

Liquidity and Capital Resources

The following table summarizes working capital at September 30, 2016 and December 31, 2015.

The Company borrowed $200,000 in short term loans to fund working capital requirements as revenue continues to grow over prior periods. This loan is repayable in 5 months, therefore over the next twelve months we estimate that the company will require approximately $3.15 million to cover the working capital deficit and properly market and promote the company. 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.

PART II

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 because we are a smaller reporting company.

Item 2. Unregistered sales of equity securities and use of proceeds

None.

Item 3. Defaults upon senior securities

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

Not applicable.

Item 6. Exhibits

* filed herewith

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

GREENESTONE HEALTHCARE CORP.

Date: November 16, 2016

By:/s/ Shawn E. Leon

Name: Shawn E. Leon

Title: Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.