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: March 31, 2016

 

OR

 

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

For the Transition Period from ___________ to____________

 

Commission File Number: 000-15078

 

GREENESTONE HEALTHCARE CORPORATION

(Exact name of registrant as specified in its charter)

 

Colorado		84-1227328
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

  

 

5734 Yonge Street, Suite 300

North York, Ontario, Canada M2M 4E7

(Address of principal executive offices and zip code)

 

(416) 222-5501

(Registrant’s telephone number, including area code)

  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes [X] No [ ]

 

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

 

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

  

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

 

As of May 13, 2016, there were 47,738,855 shares outstanding of the registrant’s common stock.

GREENESTONE HEALTHCARE CORPORATION

THREE MONTHS ENDED MARCH 31, 2016

 

TABLE OF CONTENTS  

 

				Page
PART I.
Item 1.		Financial Statements			1
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
PART II.
Item 1		Legal Proceedings			26
Item 1A.		Risk factors			26
Item 2		Unregistered sale of equity securities and use of proceeds			26
Item 3		Defaults upon senior securities			26
Item 4		Mine Safety Disclosures			26
Item 5		Other Information			26
Item 6		Exhibits			26
SIGNATURES					27

PART I

 

Item 1. Financial Statements.

 

GREENESTONE HEALTHCARE CORPORATION

INDEX TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in US$ unless otherwise indicated)    

           

Condensed Consolidated Balance Sheets as of March 31, 2016 (unaudited) and December 31, 2015			2
Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015.			3
Unaudited Condensed Consolidated Statements of changes in Stockholders Deficit.			4
Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015.			5
Notes to the unaudited Condensed Consolidated Financial Statements			6

 

GREENESTONE HEALTHCARE CORPORATION

CONDENSED CONSOLDATED BALANCE SHEETS

 

		March 31, 2016				December 31, 2015
		Unaudited
ASSETS
Current assets
Cash		$	3,543			$	174
Accounts receivable, net			263,793				183,582
Prepaid expenses			23,405				15,489
Related party Receivables			75,190				—
Total current assets			365,931				199,245
Non-current assets
Cash - Restricted			77,100				72,250
Deposits			—				8,217
Fixed assets, net			177,797				193,131
Total non-current assets			254,897				273,598
Total assets		$	620,828			$	472,843
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Bank overdraft		$	44,909				15,801
Accounts payable and accrued liabilities			442,470				606,274
Taxes payable			2,697,464				2,490,506
Deferred revenue			98,996				181,075
Current portion of loan payable			7,213				6,684
Short-term loan			41,332				21,675
Related party payables			492,930				274,496
Total current liabilities			3,825,314				3,596,511
Non-current liabilities
Loan payable			7,544				8,788
Total liabilities			3,832,858				3,605,299
Stockholders' deficit
Preferred stock - Series A; $0.01 par value, 3,000,000 authorized, nil outstanding as of March 31, 2016 and December 31, 2015.			—				—
Preferred Stock - Series B; $0.01 par value, 10,000,000 authorized, nil outstanding as of March 31, 2016 and December 31 2015.			—				—
Common stock; $0.01 par value, 500,000,000 shares authorized; 47,738,855 shares issued and outstanding  as of March 31, 2016 and December 31, 2015.			477,389				477,389
Additional paid-in capital			16,177,534				16,177,534
Accumulated other comprehensive income			710,722				933,826
Accumulated deficit			(20,577,675	)			(20,721,205	)
Total stockholders' deficit			(3,212,030	)			(3,132,456	)
Total liabilities and stockholders' deficit		$	620,828			$	472,843

 

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

 

GREENESTONE HEALTHCARE CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

		Three months ended March 31, 2016				Three months ended March 31, 2015
Revenues		$	822,837			$	680,712
Operating expenses
Depreciation			15,333				20,994
General and administrative			163,120				298,201
Management fees			—				48,368
Professional fees			27,644				84,011
Rent			74,392				88,755
Salaries and wages			394,517				444,471
Total operating expenses			675,006				984,800
Operating income (loss)			147,831				(304,088	)
Other expense
Interest expense			(38,188	)			(51,541	)
Foreign exchange movements			33,887				—
Net income (loss) before taxation			143,530				(355,629	)
Taxation			—				—
Net income (loss)			143,530				(355,629	)
Accumulated other comprehensive (loss) income
Foreign currency translation adjustment			(223,104	)			315,179
Total comprehensive loss		$	(79,574	)		$	(40,450	)
Basic Income (loss) per common share		$	0.00			$	(0.01	)
Diluted Income (loss) per common share		$	0.00			$	(0.01	)
Weighted average common shares outstanding - Basic			47,738,855				46,388,120
Weighted average common shares outstanding - Diluted			48,005,555				46,388,120

 

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

 

GREENESTONE HEALTHCARE CORPORATION

UNAUDUTED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT

                 

		Common								Additional Paid in				Comprehensive				Accumulated
		Shares				Amount				Capital				Income				Deficit				Total
Balance as of January 1, 2016			47,738,855			$	477,389			$	16,177,534			$	933,826			$	(20,721,205	)		$	(3,132,456	)
Foreign currency translation			—				—				—				(223,104	)			—				(223,104	)
Net income for the three months end March 31, 2016			—				—				—				—				143,530				143,530
Balance as of March 31, 2016			47,738,855			$	477,389			$	16,177,534			$	710,722			$	(20,577,675	)		$	(3,212,030	)

 

 

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

 

GREENESTONE HEALTHCARE CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

 

		Three months ended March 31, 2016				Three months ended March 31, 2015
Operating activities
Net Income (loss)		$	143,530			$	(355,629	)
Adjustment to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation			15,333				20,994
Provision for bad debts			—				10,442
Stock issued for services			—				56,906
Other foreign exchange movements			(1,460	)			(207	)
Non cash movement in deposits			8,217				—
Amortization of beneficial conversion feature			—				9,609
Changes in operating assets and liabilities
Accounts receivable			(80,211	)			(31,088	)
Prepaid expenses			(7,916	)			14,633
Accounts payable and accrued liabilities			(161,538	)			(109,310	)
Taxes payable			206,958				(72,685	)
Deferred revenue			(82,079	)			34,196
Net cash provided by (used in) operating activities			40,834				(422,139	)
Investing activities
Purchase of fixed assets			—				(9,613	)
Net cash used in investing activities			—				(9,613	)
Financing activities
Decrease in restricted cash			—				7,350
Increase in bank overdraft			29,108				9,758
Repayment of loan payable			(1,658	)			(3,938	)
Proceeds from short-term notes			36,815				—
Repayment of short-term notes			(21,870	)			(18,685	)
Proceeds from related party notes			143,244				25,398
Net cash provided by financing activities			185,639				19,883
Effect of exchange rate on cash			(223,104	)			329,230
Net change in cash			3,369				(82,639	)
Beginning cash balance			174				88,152
Ending cash balance		$	3,543			$	5,513
Supplemental cash flow information
Cash paid for interest		$	1,263			$	38,190
Cash paid for income taxes		$	—			$	—
Non cash investing and financing activities
Common stock issued on conversion of convertible notes		$	—			$	8,117

 

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

 

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. 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 March 31, 2016, 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 condensed consolidated 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 unaudited condensed consolidated 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 condensed consolidated financial statements. Operating results for the three month period presented are not necessarily indicative of the results that may be expected for any other interim periods or for the full year. The balance sheet at December 31, 2015 has been derived from audited consolidated financial statements. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto for the year ended December 31, 2015.

 

2. Summary of Significant Accounting Policies

 

a) Financial Reporting

 

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

 

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

 

b) Use of Estimates

 

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

 

c) Principals of consolidation and foreign currency translation

 

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

 

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2. Summary of Significant Accounting Policies(continued)

 

c) Principals of consolidation and foreign currency translation (continued)

 

The Company’s subsidiary’s 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:

 

•

Monetary assets and liabilities at the rate of exchange in effect at the balance sheet date.

•

Equity at historical rates.

•

Revenue and expense items at the average rate of exchange prevailing during the period.

 

Adjustments arising from such translations are deferred until realization and are included as a separate component of stockholders’ deficit as a component of accumulated other comprehensive income or loss. Therefore, translation adjustments are not included in determining net income (loss) but reported as other comprehensive income (loss).

 

For foreign currency transactions, the Company translates these amounts to the Company’s functional currency at the exchange rate effective on the invoice date. If the exchange rate changes between the time of purchase and the time actual payment is made, a foreign exchange transaction gain or loss results which is included in determining net income for the period.

 

The relevant translation rates are as follows: For the three months ended March 31, 2016; a closing rate of CAD$1.0000 equals US$0.7710 and an average exchange rate of CAD$1.0000 equals US$0.7290.

 

d) Revenue Recognition

 

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

 

•

the significant risks and rewards of ownership are transferred to customers and the Company retains neither continuing involvement nor effective control;

•

there is clear evidence that an arrangement exists;

•

the amount of revenue and related costs can be measured reliably; and

•

it is probable that the economic benefits associated with the transaction will flow to the Company.

 

In particular, the Company recognizes:

 

•

Fees for out-patient counselling, coaching, intervention, psychological assessments and other related services when patients receive the service; and

•

Fees for in-patient addiction treatments proportionately over the term of the patient’s treatment.

 

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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2. Summary of Significant Accounting Policies(continued)

 

e) Non-monetary transactions

 

The Company’s policy is to measure an asset exchanged or transferred in a non-monetary transaction at the more reliable measurement of the fair value of the asset given up and the fair value of the asset received, unless:

 

•

The transaction lacks commercial substance;

•

The transaction is an exchange of a product or property held for sale in the ordinary course of business for a product or property to be sold in the same line of business to facilitate sales to customers other than the parties to the exchange;

•

Neither the fair value of the asset received nor the fair value of the asset given up is reliably measurable; or

•

The transaction is a non-monetary, non-reciprocal transfer to owners that represents a spin-off or other form of restructuring or liquidation.

 

f) Cash and cash equivalents

 

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 $77,100 (CAD$100,000) in restricted cash held by their bank to cover against the possibility of credit card charge backs, for services not performed.

 

g) Accounts receivable

 

The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change. At March 31, 2016 and December 31, 2015, the Company has a $0 and $0 allowance for doubtful accounts, respectively.

 

h) Financial instruments

 

The Company initially measures its financial assets and liabilities at fair value, except for certain non-arm's length transactions. The Company subsequently measures all its financial assets and financial liabilities at amortized cost.

 

Financial assets measured at amortized cost include cash and accounts receivable.

 

Financial liabilities measured at amortized cost include bank indebtedness, accounts payable and accrued liabilities, harmonized sales tax payable, withholding taxes payable, convertible notes payable, loan payable and related party notes.

 

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

 

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2. Summary of Significant Accounting Policies(continued)

 

h) Financial instruments (continued)

 

FASB ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. ASC 820 establishes a three tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 

•

Level 1. Observable inputs such as quoted prices in active markets;

•

Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

•

Level 3. Unobservable inputs in which there is little or no market data, which requires the reporting entity to develop its own assumptions.

 

The Company does not have assets or liabilities measured at fair value on a recurring basis at March 31, 2016 and December 31, 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 three months ended March 31, 2016 and 2015.

 

i) Fixed assets

 

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

 

Computer Equipment			30	%
Computer Software			100	%
Furniture and Equipment			30	%
Medical Equipment			25	%
Vehicles			30	%

 

Leasehold improvements are depreciated using the straight-line method over the term of the lease. Half rates are used for all fixed assets in the year of acquisition.

 

j) Leases

 

Leases are classified as either capital or operating leases. Leases that transfer substantially all of the benefits and inherent risks of ownership of property to the Company are accounted for as capital leases. At the time a capital lease is entered into, an asset is recorded together with its related long-term obligation to reflect the acquisition and financing. Equipment recorded under capital leases is amortized on the same basis as described above. Payments under operating leases are expensed as incurred.

 

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2.Summary of Significant Accounting Policies(continued)

 

k) Income taxes

 

The Company accounts for income taxes under the provisions of ASC Topic 740, “Income Taxes”. Under ASC Topic 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income taxes are provided using the liability method. Under this method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The tax basis of an asset or liability is the amount attributed to that asset or liability for tax purposes. The effect on deferred taxes of a change in tax rates is recognized in income in the period of change. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of, the deferred tax assets will not be realized.

 

ASC Topic 740 contains a two-step approach to recognizing and measuring uncertain tax positions taken or expected to be taken in a tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company recognizes interest and penalties accrued on unrecognized tax benefits within general and administrative expense. To the extent that accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction in general and administrative expenses in the period that such determination is made. The tax returns for fiscal 2001, through 2013 are subject to audit or review by the US tax authority, whereas fiscal 2010 through 2013 are subject to audit or review by the Canadian tax authority.

  

l) Income (Loss) per share information

 

Basic net income (loss) per share is computed on the basis of the weighted average number of common shares outstanding during the period.

 

Diluted net income (loss) per share is computed on the basis of the weighted average number of common shares and common share equivalents outstanding. Dilutive securities having an anti-dilutive effect on diluted net loss per share are excluded from the calculation (See Note 11, below).

 

Dilution is computed by applying the treasury stock method for options and warrants. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common shares at the average market price during the period.

 

Dilution is computed by applying the if-converted method for convertible preferred shares. Under this method, convertible preferred stock is assumed to be converted at the beginning of the period (or at the time of issuance, if later), and preferred dividends (if any) will be added back to determine income applicable to common stock. The shares issuable upon conversion will be added to weighted average number of common shares outstanding. Conversion will be assumed only if it reduces earnings per share (or increases loss per share).

 

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2. Summary of Significant Accounting Policies(continued)

 

m) Stock based compensation

 

ASC 718-10 "Compensation - Stock Compensation" prescribes accounting and reporting standards for all stock based payments awarded to employees, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights that may be classified as either equity or liabilities. The Company should determine if a present obligation to settle the share based payment transaction in cash or other assets exists. A present obligation to settle in cash or other assets exists if: (a) the option to settle by issuing equity instruments lacks commercial substance or (b) the present obligation is implied because of an entity's past practices or stated policies. If a present obligation exists, the transaction should be recognized as a liability; otherwise, the transaction should be recognized as equity.

 

The Company accounts for stock based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50 "Equity - Based Payments to Non-Employees". Measurement of share based payment transactions with non-employees shall be based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share based payment transaction should be determined at the earlier of performance commitment date or performance completion date.

 

n) Legal proceedings

 

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

 

o) Accounting for uncertainty in income taxes

 

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

 

p) Derivatives

 

The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. The Company uses a Black- Scholes Option Pricing model to estimate the fair value of convertible debt conversion features at the end of each applicable reporting period. Changes in the fair value of these derivatives during each reporting period are included in the statements of operations. Inputs into the Black Scholes Option Pricing model require estimates, including such items as estimated volatility of the Company’s stock, risk-free interest rate and the estimated life of the financial instruments being fair valued.

 

If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion feature.

 

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2. Summary of Significant Accounting Policies(continued)

 

q) Recent accounting pronouncements

 

In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2016-01, which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this guidance.

 

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.

 

r) 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, March 31, 2016 and December 31, 2015.

 

I) Credit risk

 

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Financial instruments that subject the Company to credit risk consist primarily of accounts receivable.

 

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

 

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

 

II) Liquidity risk

 

Liquidity risk is the risk the Company will not be able to meet its financial obligations as they fall due. The Company is exposed to liquidity risk through its working capital deficiency of $(3,459,383) and accumulated deficit of $(20,577,675). As disclosed in note 3, the Company will be dependent upon the raising of additional capital in order to implement its business plan. There is no assurance that the Company will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on the Company’s financial condition. In the opinion of management, liquidity risk is assessed as high, material and remains unchanged from the prior year.

 

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2. Summary of Significant Accounting Policies(continued)

 

r) Financial instruments (continued)

 

III) Market risk

 

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises of three types of risk: interest rate risk, currency risk, and other price risk. The Company is exposed to interest rate risk and currency risk.

 

i. Interest rate risk

 

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to minimal interest rate risk on its bank indebtedness as there is a balance of $44,909 at March 31, 2016. 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 March 31, 2016, a 5% depreciation or appreciation of the Canadian dollar against the U.S. dollar would result in an approximate $11,600 increase or decrease in the Company’s after-tax net income (loss) from 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.

 

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.

 

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

3. Going Concern

 

The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with US GAAP applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations in the normal course of business. As at March 31, 2016 the Company has a working capital deficiency of $(3,459,383) and accumulated deficit of $(20,577,675). Management believes that current available resources will not be sufficient to fund the Company’s planned expenditures, including past due payroll and sales tax payments, as well as estimated penalties and interest, over the next 12 months. Accordingly, the Company will be dependent upon the raising of additional capital through placement of common shares, and, or debt financing in order to implement its business plan, and, or generating sufficient revenue in excess of costs. If the Company raises additional capital through the issuance of equity securities or securities convertible into equity, stockholders will experience dilution, and such securities may have rights, preferences or privileges senior to those of the holders of common stock or convertible senior notes. If the Company raises additional funds by issuing debt, the Company may be subject to limitations on its operations, through debt covenants or other restrictions. If the Company obtains additional funds through arrangements with collaborators or strategic partners, the Company may be required to relinquish its rights to certain geographical areas, or techniques that it might otherwise seek to retain. There is no assurance that the Company will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on the Company’s financial condition. These unaudited condensed consolidated financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue operations.

 

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

  

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

 

4. Accounts receivable

 

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

 

		March 31, 2016				December 31, 2015
		Unaudited
Treatment program		$	263,793			$	183,582
Allowance for doubtful accounts			—				—
		$	263,793			$	183,582

 

5. Due from sale of subsidiary

 

A net amount of CAD$617,960 is due to the Company on the sale of the Endoscopy Clinic in December 2014. This debt is 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 CAD$617,960 was revalued at US$476,477 as of March 31, 2016 and US$446,476 as of December 31, 2015. Management evaluated this receivable as of March 31, 2016 and a provision for the full value of the note was raised as of March 31, 2016 and December 31, 2015.

 

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

5. Due from sale of subsidiary (continued)

 

The amount due on the sale of subsidiary is summarized as follows:

 

		March 31, 2016				December 31, 2015
		Unaudited
Principal outstanding		$	476,447			$	446,476
Accrued interest			—				—
			476,447				446,476
Provision raised			(476,447	)			(446,476	)
		$	—			$	—

 

6. Fixed assets

 

Fixed assets consists of the following:

 

		Cost				Accumulated depreciation				Net book value March 31, 2016				Net book value December 31, 2015
										Unaudited
Computer equipment		$	21,278			$	15,779			$	5,498			$	5,945
Computer software			9,848				6,155				3,693				4,924
Furniture and equipment			352,379				264,827				87,552				94,651
Leasehold improvement			142,793				82,315				60,478				65,382
Medical equipment			4,491				3,508				983				1,047
Vehicles			64,175				44,582				19,593				21,182
		$	594,964			$	417,166			$	177,797			$	193,131

 

Depreciation expense for the three months ended March 31, 2016 and 2015 was $15,333 and $20,994, respectively

  

7. Taxation Payable

 

The Company has the following outstanding tax liabilities:

 

a) Harmonized Sales taxes

 

This represents sales tax liabilities in Canada, these taxes were never paid, management intends paying these taxation liabilities together with interest and penalties thereon, when sufficient funds are raised to do so. As of March 31, 2016 the balance due to the Canadian tax authorities amounted to $327,690.

 

b) Payroll taxes

 

The Company is delinquent in filing its payroll tax returns resulting in taxes, interest and penalties payable at March 31, 2016 and December 31, 2015. As of March 31, 2016 and December 31, 2015 as part of Taxes Payable, the Company has payroll tax liabilities of approximately $2,169,775 and $1,780,052, respectively, due to various taxing authorities. 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.

 

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

7. Taxation Payable (continued)

 

c) US taxation and penalties

 

The Company has assets and operates a business in Canada and is required to disclose these operations to the US taxation authorities, the requisite disclosure has not been made and management has reserved the maximum penalty due to the IRS in terms of non-disclosure. This non-compliance with US disclosure requirements is currently being addressed.

 

The taxes and penalties due as of March 31, 2016 and December 31, 2015 is as follows:

 

		March 31, 2016				December 31, 2015
		Unaudited
Payroll Taxes and harmonized sales taxes		$	2,497,464			$	2,290,506
US taxes and penalties			200,000				200,000
		$	2,697,464			$	2,490,506

 

8. Loans payable

 

The Company has an automobile loan payable bearing interest at 4.49% with blended monthly payments of $835 that matures in March 2018. The loan is secured by the vehicle with a net book value as at March 31, 2016 of $14,767.

 

		March 31, 2016				December 31, 2015
		Unaudited
Automobile loan
Current portion		$	7,213			$	6,684
Long-term portion			7,544				8,788
		$	14,757			$	15,472

 

Estimated principal payments are as follows:

 

		Amount
Within 1 year			7,213
1 to 2 years		$	7,544
		$	14,757

 

9. Related Party Transactions

 

GreeneStone Clinic Inc.

As of March 31, 2016 and December 31, 2015, the Company had a receivable of $67,297 and a payable of $(5,284), respectively. GreeneStone Clinic Inc., is controlled by one of the Company’s directors. The balance receivable and payable is non-interest bearing, not secured and has no specific repayment terms.

 

The Company incurred management fees from GreeneStone Clinic, Inc., totaling $0 and $48,368 for the three months ended March 31, 2016 and 2015, respectively.

 

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

9. Related Party Transactions (continued)

 

1816191 Ontario

As of March 31, 2016 and December 31, 2015, the Company had a receivable of $7,893 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 non-interest bearing, and has no specific repayment terms.

 

Shawn E. Leon

As of March 31, 2016 and December 31, 2015 the Company had a payable of $159,551. The balance payable is non-interest 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 CAD $96,045 and CAD $96,600 for the three months ended March 31, 2016 and 2015, respectively. Cranberry Cove Holdings Ltd. is related to the Company by virtue of its shareholder owning 1816191 Ontario.

 

As of March 31, 2016 and December 31, 2015, the Company owed Cranberry Cove holdings $333,380(CAD $432,399) and $87,356 (CAD$120,908) in accrued rent and utility charges.

 

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

 

10. Stockholders’ deficit

 

a) Common shares

 

Authorized

 

The Company has the authority to issue to 500,000,000 common shares at a par value of $0.01 per share.

 

Issued and outstanding

 

The Company has a total of 47,738,855 common shares with a par value of $0.01 each, issued and outstanding as of March 31, 2016 and December 31, 2015.

 

b) Preferred shares

 

Authorized

 

The Company has the authority to issue 3,000,000 series A convertible preferred shares and 10,000,000 Series B convertible preferred shares with a par value of $0.01 per share.

 

Issued and outstanding

 

The Company had no issued and outstanding preferred shares as at March 31, 2016 and December 31, 2015.

 

c) Warrants

 

No warrants were issued or exercised for the period under review. Warrants over 4,500,000 shares of common stock expired on January, 19, 2016.

 

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

10. Stockholders’ deficit (continued)

 

c) Warrants (continued)

 

The movement in warrants outstanding is summarized below:

 

				Number of warrants outstanding				Weighted average exercise price per share
	Outstanding at January 1, 2015				6,300,000			$	0.143
	Granted				—				—
	Cancelled/forfeited				—				—
	Exercised				—				—
	Outstanding at December 31, 2015				6,300,000				0.143
	Granted				—				—
	Cancelled/forfeited				(4,500,000	)			0.150
	Exercised				—				—
	Outstanding at March 31, 2016			$	1,800,000			$	0.126

 

The following table summarizes information about warrants outstanding at March 31, 2016

 

Exercise Price				Number of warrants				Weighted average remaining life				Weighted average exercise price
$	0.003				300,000				*			$	0.003
$	0.150				1,500,000				0.72				0.150
					1,800,000							$	0.126

 

*

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 March 31, 2016 the 6,300,000 warrants were all vested, there were no unrecognized compensation costs related to these warrants and the intrinsic value of the warrants as of March 31, 2016 is $8,001.

 

d) Stock options

 

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 March 31, 2016 under the Plan.

 

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

 

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

10. Stockholders’ deficit (continued)

 

d)Stock options (continued)

 

The movement in options outstanding is summarized below.

 

				Number of options outstanding				Weighted average exercise price per share
	Outstanding at January 1, 2015				480,000			$	0.12
	Granted				—				—
	Cancelled/forfeited				—				—
	Exercised				—				—
	Outstanding at December 31, 2015				480,000				0.12
	Granted				—				—
	Cancelled/forfeited				—				—
	Exercised				—				—
	Outstanding at March 31, 2016			$	480,000			$	0.12

 

The following table summarizes information about options outstanding at March 31, 2016.

 

Exercise Price				Number of options outstanding				Number of options exercisable				Weighted average remaining life				Weighted average exercise price
$	0.12				480,000				340,000				3.59			$	0.12

 

The Company agreed to issue Stock options to a former officer vesting over a 24-month period commencing on November 1, 2014 expiring on October 31, 2019, a formal option agreement has not been issued as yet, as such the terms of these options are uncertain.

 

As of March 31, 2016 there was no unrecognized compensation costs related to these options and the intrinsic value of the options is $0.

 

11. Net income (loss) per common share

 

Basic income (loss) per share is based on the weighted-average number of common shares outstanding during each period. Diluted income (loss) per share is based on basic shares as determined above plus the incremental shares that would be issued upon the assumed exercise of “in-the-money” stock options and warrants using the treasury stock method and the inclusion of all convertible securities, including preferred stock and convertible notes, assuming these securities were converted at the beginning of the period or at the time of issuance, if later. The computation of diluted net income (loss) per share does not assume the issuance of common shares that have an anti-dilutive effect on net income (loss) per share.

 

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

11. Net income (loss) per common share (continued)

 

For the three months ended March 31, 2016 the computation of basic and diluted earnings per share is as follows:

 

		Income				Number of shares				Per share amount
Net income		$	143,530
Basic earnings per share			143,350				47,738,855			$	0.00
Effect of dilutive securities
Warrants			—				266,700
Options			—				—
Diluted earnings per share		$	143,350				48,005,555			$	0.00

 

For the three months ended March 31, 2016, options to purchase 480,000 shares of common stock and warrants to purchase 1,500,000 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 ended March 31, 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:

 

		Three months ended March 31, 2015
Options to purchase shares of common stock		$	480,000
Warrants to purchase shares of common stock			6,300,000
Outstanding at March 31, 2015		$	6,780,000

  

12. Commitments and contingencies

 

a. Operating leases

 

The Company has entered into a lease agreement for the rental of premises operated by GreeneStone Clinic Muskoka Inc. which term initially expires on March 31, 2019. The Company has an option to extend the lease for an additional three terms, each term being an additional three years. The Company also has an option to purchase the property for $10,000,000, which option must be exercised in writing, accompanied by a $250,000 deposit and must be closed within 30 days of exercising the option. The Company also has a right of first refusal should the landlord receive an acceptable offer for the premises, the Company would be entitled to acquire the premises on the same terms and conditions of the acceptable offer, provided the Company has met certain covenants. The rental expense for the three months ended March 31, 2016 was $70,018 (CAD $96,045).

 

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

12. Commitments and contingencies (continued)

 

a. Operating leases (continued)

 

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 $0.7710:

 

				Amount
	2016			$	285,145
	2017				412,513
	2018				458,926
	2019				117,662
				$	1,274,246

 

b. Contingency related to outstanding tax liabilities

 

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 fully disclosed in note 7 above.

 

As of March 31, 2016, the Company had estimated Canadian tax liabilities outstanding of $2,497,464, 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 tax liabilities of $200,000 due to non-compliance with the filing of certain required returns. The actual liability may be higher due to interest and penalties assessed by these taxing authorities.

 

c. Other

 

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.

  

13. Income taxes

 

The Company is not current in its tax filings as of March 31, 2016.

 

As at December 31, 2015, the Company is in arrears on filing its statutory income tax returns and the amounts presented above are based on estimates. The actual losses available could differ from these estimates. In addition, the Company could be subject to penalties for these unfiled tax returns

 

During the year ended December 31, 2015, the Company has accrued and expensed $200,000 (2014: $150,000) in penalties and interest attributable to delinquent information returns which the Company is required to file in the US. Management believes the Company has adequately provided for any ultimate amounts that are likely to be due once these information returns are filed.

 

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

 

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

14. Subsequent events

 

The Company entered into a Securities Purchase Agreement with JMJ Financial on April 13, 2016, in terms of the agreement the Company borrowed $200,000 in terms of an unsecured convertible promissory note with a maturity date of seven months from the closing date. The principal amount due under the promissory note is $220,000, inclusive of an Original Issue discount and a further 10% once-off interest charge ($22,000) is due in terms of this note. The note is only convertible upon a repayment default, at a price to be determined. The Company will also issue, in terms of the financing, 3,703,700 warrants exercisable over common shares at $0.03 per share, which warrants contain a cashless exercise option.

 

Other than disclosed above, 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 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 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 after-care 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 by the second quarter of the 2016 financial year, once the appropriate funding has been raised.

 

Results of Operations

 

For the three months ended March 31, 2016 and the three months ended March 31, 2015.

 

Revenue

 

Revenues amounted to $822,837 and $680,712 for the three months ended March 31, 2016 and 2015, respectively, an increase of $142,125 or 20.9%. We operate in Canada and our functional currency is the Canadian Dollar. Our revenue, in Canadian Dollars increased from CAD$844,421 to CAD$1,128,708 for the three months ended March 31, 2016 and 2015, respectively, an increase of $284,287 or 33.7%. 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 $0.8061 to $0.7290 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 $675,006 and $984,800 for the three months ended March 31, 2016 and 2015, respectively, a decrease of $309,794 or 31.5%. The decrease in operating expenses in US$ terms is partially attributable to the relative strength of the US $ against the CAD $ during the current period, the average exchange rate between the CAD $ and the US $ has weakened from $0.8061 in the prior year to $0.7290 in the current period, a decrease in the average exchange rate of 9.6%. The decline in the currency exchange rate accounts for approximately $94,192 of the differential. The non-currency decrease is primarily attributed to a reduction in labor of CAD $18,425, the reduction in management fees of CAD $60,000, which were charged in the prior period and not in the current period and the reduction in professional service fees of US $86,953 over the prior year related to the restatement of the prior year results and investor relations expenditure which is non-recurring.

 

Operating income (loss)

 

The operating income (loss) amounted to $147,831 and $(304,088) for the three months ended March 31, 2016 and 2015, respectively, a net increase of $451,919, primarily due to the improved revenues and the decline in operating expenditure as discussed above.

 

Interest expense

 

Interest expense amounted to $38,188 and $51,541 for the three months ended March 31, 2016 and 2015, respectively, a decrease of $13,353 or 25.9%. The decline consists of an approximate decline of $4,930 due to the deterioration in the average exchange rate from $0.8061 to $0.7290 for the three months ended March 31, 2015 and 2016, respectively. The interest expense consists primarily of interest accrued on the outstanding Canadian tax liabilities.

 

Foreign exchange movements

 

Foreign exchange movements of $33,887, represent the realized exchange gain on monetary assets and liabilities settled during the current year 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 $143,530 and $(355,629) for the three months ended March 31, 2016 and 2015, respectively, an increase of $501,159, primarily due to the improvement in revenues and the decrease in operating expenses, 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 March 31, 2016 and December 31, 2015. As of March 31, 2016 and December 31, 2015 as part of Taxes Payable, the Company has tax liabilities of approximately $2,697,464 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 March 31, 2016 and December 31, 2015.

 

		March 31, 2016				December 31, 2015				Increase (decrease)
Current Assets			365,931				199,245			$	166,686
Current Liabilities			(3,825,314	)			(3,596,511	)			(228,803	)
Working capital deficit		$	(3,459,383	)			(3,397,266	)		$	(62,117	)

 

Over the next twelve months we estimate that the company will require approximately $3.5million 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

 

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

*

filed herewith

SIGNATURES

 

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: May 13, 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.

 

Name	Position	Date
/s/Shawn E. Leon	Chief Executive Officer (Principal Executive Officer),	May 13, 2016
Shawn Leon	Chief Financial Officer (Principal Financial Officer), President and Director
/s/ John O’Bireck	Director	May 13, 2016
John O’Bireck
/s/ Gerald T. Miller	Director	May 13, 2016
Gerald T. Miller