UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

þ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended: December 31, 2012

 

or

 

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission file number: 000-15078

 

Greenestone Healthcare Corporation

(Exact name of registrant as specified in its charter)

 

 

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)

 

(416) 222-5501

(Registrant’s telephone number, including area code)

 

Securities registered under Section 12(b) of the Exchange Act:

 

Title of each class

 

Name of each exchange on which registered
None N/A

 

Securities registered under Section 12(g) of the Act:

 

Common Stock, $0.01 par value per share

(Title of class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ

 

 
Table of Contents

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the last 90 days.

Yes þ 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 ¨ No þ

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

 

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

 

Large accelerated filer ¨   Accelerated filer ¨
         
Non-accelerated filer ¨   Smaller reporting company þ

 

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

 

Issuer’s revenues for its most recent fiscal year were approximately $5,540,909.

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on June 30, 2012, based on a closing price of $1.41 was approximately $14,902,385.88. As of March 31, 2013, the registrant had 27,234,279 shares of its common stock, par value $0.01 per share, outstanding.

 

 

 

 

 

 

 

Prepared By:

 

Sunny J. Barkats, Esq.

Matthew C. Carroll, Esq.

JSBarkats, PLLC

18 East 41 st Street, 19 th Floor

New York, NY 10017

P: (646) 502-7001

F: (646) 607-5544

www.JSBarkats.com

 

 

 

 

 

 

 

 

 

 
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GREENESTONE HEALTHCARE CORP.

FOR THE FISCAL YEAR ENDED

DECEMBER 31, 2012

 

TABLE OF CONTENTS

 

      Page
PART I    
       
Item 1. Business.   2
Item 1A. Risk Factors.   5
Item 1B. Unresolved Staff Comments.   5
Item 2 . Properties.   5
Item 3. Legal Proceedings.   6
Item 4. Mine Safety Disclosures.   6
     
PART II  
       
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.   7
Item 6. Selected Financial Data.   11
Item 7 . Management’s Discussion and Analysis of Financial Condition and Results Of Operations.   11
Item 7A . Quantitative And Qualitative Disclosures About Market Risk.   17
Item 8. Financial Statements and Supplementary Data.   18
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.   19
Item 9A . Controls and Procedures.   19
Item 9B. Other Information.   20
       
PART III
       
Item 10. Directors, Executive Officers and Corporate Governance.   21
Item 11. Executive Compensation.   23
Item 12 . Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.   24
Item 13 . Certain Relationships and Related Transactions, and Director Independence.   25
Item 14 . Principal Accounting Fees and Services.   26
       
PART IV
       
Item 15. Exhibits, Financial Statement Schedules.   27

 

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PART I

 

Item 1. Business.

 

Company History

 

Greenestone Healthcare Corporation (formerly Nova Natural Resources Corporation, a Colorado corporation), was incorporated under the laws of the State of Colorado on April 1, 1993 (“Greenestone” or the “Company”), and is the surviving company of a merger, effective February 1, 1995, between the Company and Nova Natural Resources Corporation, a Delaware corporation (“Nova Delaware”). The merger was effectuated solely for the purpose of changing the Company’s domicile from Delaware to Colorado. At all times prior to 2001, the Company was engaged in the oil and gas exploration business. Nova Delaware was the successor entity to Nova Petroleum Corporation, a Delaware corporation, and Power Resources Corporation, a Delaware corporation, which merged in 1986 (“the 1986 Merger”). Prior to the 1986 Merger, Nova Petroleum Corporation and Power Resources Corporation had operated since 1979 and 1972, respectively. In 2001, the Company entered into the electronics business and this business was active in 2001 and 2002, as part of the Torita Group. After 2002, the Company continued with various stages of development in this business until 2010.

 

Change in Operations

 

On April 1, 2010, the Company, pursuant to Board of Directors resolution, changed its principal operations from development stage electronics to healthcare services. On March 29, 2010, the Company entered into a one-year consulting agreement with Greenestone Clinic Inc., a Canadian corporation (“Greenestone Clinic”), whereby Greenestone Clinic was to provide consulting services for the Company’s development and operation of medical clinics in the province of Ontario, Canada. Specifically, Greenestone would provide medical and business expertise in the initial startup of private clinics and technical assistance to ensure the clinics complied with governmental policy and procedure requirements as well as any operational requirements. At the time of this consulting agreement, Greenestone Clinic operated a clinic at the Muskoka property now housing its addiction treatment clinic and provided endoscopy services the Company planned to offer in its first Ontario medical clinic.

 

On May 15, 2010, the Company secured, through its wholly-owned subsidiary 1816191 Ontario Ltd. (“1816191”), a sublease of space (which was previously the Rothbart Pain Clinic) of approximately 8,000 sq. ft. to be used as the Company’s executive offices and to run its first endoscopy clinic. The Company started offering medical services in June 2010, offering various medical services, including endoscopy, cardiology and executive medicals.

 

In March 2011, Greenestone Clinic, a former Company consultant, gave up the premises in Bala, Ontario, previously leased by Greenestone Clinic and operated as a private medical resort and also allowed the Company to do business using the “GreeneStone” name. The Company, through its wholly-owned subsidiary GreeneStone Clinic Muskoka Inc. (“GreeneStone Muskoka”) entered into a lease with the owner of the Muskoka premises on April 1, 2011. The Company planned to offer only mental health and addiction treatment services in this location which would be run as an in-patient addiction treatment center.

 

Corporate Structure

 

The Company currently has two operating subsidiaries, both of which are 100% wholly-owned.

 

 

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GreeneStone Muskoka Treatment Center

 

On February 1, 2011, Dr. Paul Garfinkel was retained on a six month consulting contract to advise the Company on its plan to go into the addiction treatment business. Dr. Garfinkel formed a clinical advisory group consisting of himself and Dr. Clive Chamberlain, Dr. Greg O’Donahue and Janice Harris R.N. The clinical advisory group (the “CAG”) was to create the mission and values for the addiction treatment business and locate and hire a leader for the addiction treatment business.

 

On April 1, 2011, the Company through Greenestone Muskoka, entered into a new lease (the “Bala Lease”) with the Cranberry Cove Holdings Ltd. (“Cranberry”), the owner of the Bala, Ontario property (the “Bala Property”) in order to operate a mental health and addiction treatment center at the property. On April 1, 2011 (the “Purchase Date”), Greenestone Muskoka purchased all of the assets of Greenestone Clinic that were previously used for the operation of the executive medical center located at the Bala Property. This essentially gave Greenestone Muskoka a turn-key opportunity to start up its addiction treatment business (the “GreeneStone Muskoka Treatment Center”).

 

On April 1, 2011, Dr. Susan K. Blank was hired on a one year contract to run the GreeneStone Muskoka Treatment Center. Dr. Blank worked with the CAG to refine the mission and values for the GreeneStone Muskoka Treatment Center and worked together on the policies and procedures for the operation of the treatment center.

 

In August 2011, the Greenestone Muskoka Treatment Center began providing addiction treatment services and took its first paying clients. The GreeneStone Muskoka Treatment Center offers clients a 45-day program that costs between $27,000 and $37,000 for the stay. Treatment is individualized and after the first two weeks of treatment, the client is assessed and extended treatment is often recommended. The treatment offered is concurrent and the addiction and co-occuring mental health disorders are treated at the same time. The center has a 36 bed capacity and can easily be expanded beyond that capacity. Treatment consists of group and individual therapy, as well as recreation therapy. Clients are taught about nutrition and have excellent food while in treatment.

 

In November of 2011, the CAG was disbanded after achieving their goals. In March 2012, Dr. Blank and two contract therapists, all of whom were from the United States, were replaced by a more permanent team of doctors and therapists from Canada.

 

Toronto Aftercare and Intensive Out-Patient Addiction Treatment Program

 

In March 2012, the Company entered into a lease for premises at 39 Hazelton Avenue in Toronto, Ontario for the operation of an aftercare and intensive out-patient addiction treatment program. The Company, through its subsidiary Greenestone Muskoka, hired addiction therapist Andrew Galloway on April 1, 2012, to run the outpatient operation (“Greenestone Yorkville”). This operation provides follow up and aftercare services for clients of the Greenestone Muskoka Treatment Center, as well as clients that have been to other treatment centers. Clients attend these services twice per week and are billed monthly. Greenestone Yorkville also offers one-on-one counseling for clients that have not been to treatment centers and those that have. The outpatient program for this center is designed for those clients that are able to maintain sobriety while still living at home. This program is very similar to the programming at the Greenestone Muskoka Treatment Center and can last up to 90 days. Greenestone Yorkville currently has four employees.

 

North York Endoscopy Unit

 

The North York Endoscopy unit which runs at the Company’s North York location has been operating since June 25, 2010. The primary business at this location is the performance of gastroscopy and colonoscopy procedures. Patients are referred to the clinic by family physicians for the purpose of exploratory endoscopy services. Patients come to this location for an initial consult with a specialist that will perform the procedure. Once the specialist determines if the patient is a candidate for the out-of-hospital procedure, the patient will be scheduled for a procedure. Approximately 15 patients will be scheduled per specialist each day. The Company has two procedure rooms set up but has capacity to set up three. The procedure team includes a recovery room nurse, a procedure room nurse, an anesthetist, a specialist and an equipment technologist. This team is assembled from a pool of approximately thirty nurses, doctors and technologists. Procedures may take anywhere from fifteen minutes to one hour. The procedure team is only scheduled when procedures are scheduled. The clinic employs four full time staff that work in reception and manage the administration of the clinic and one full time nurse manager.

 

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The Ontario government established the need to approve out-of-hospital premises for those clinics using any form of sedation. The responsibility was put on to the College of Physicians and Surgeons to approve or license these clinics and the North York clinic was a clinic that would require a Level II certification. This process of certification was instituted after the clinic opened and was inspected in 2012.

 

Endoscopy Unit at the Albany Medical Clinic

 

On January 31, 2011, 1816191 entered into an agreement with the Albany Medical Clinic which provided for 1816191 to manage and run the endoscopy unit in the Albany Clinic’s Toronto, Ontario location. The College of Physicians and Surgeons of Ontario inspected and approved the facility in December 2011, and endoscopy procedures at this facility began in January 2012.

 

The endoscopy clinic spans a 911 sq. ft. area and features one endoscopy suite a recovery area and one office. The North York location administration staff take care of the Albany Clinic and just the procedure team is employed on days when there are procedures at the Albany Clinic. This arrangement allows for 1816191 to pay rent to the Albany Clinic only on days when there are procedures taking place.

 

The Albany Clinic is a large medical clinic that employs over 20 family physicians. These physicians are the primary referral source for the endoscopy unit at the Albany Clinic.

 

Employees

 

As of December 31, 2012, the Company had no employees and approximately 60 employees working for its two subsidiaries, not including doctors. Two management employees were split between the two subsidiaries. There were 5 full time employees working for 1816191 and 15 part time employees working on any procedure day. There were 37 full time employees working for Greenestone Muskoka.

 

Marketing

 

The Company has not implemented a formal marketing plan, but plans to make this a priority for 2013. The two primary lines of business are the endoscopy business and the addiction treatment business. They require unique initiatives for marketing. The endoscopy business relies heavily on family physician referrals. The Company has determined that the most effective method of securing referrals is to form one-on-one relationships between the physicians and the specialists. This is a time consuming process, but since it has started in 2012, the Company has steadily grown the base of referring physicians.

 

The specialists have made time available to meet with these physicians on a regular basis. The family physicians can be reminded more often what the capabilities of the clinic are and who is working as the specialists in the clinic by way of follow up emails, letters and faxes. It may prove difficult to market to individuals since they may ask their doctor about the services and then their doctor may refer them to another clinic. It is not cost effective to do this. The important distinction between the endoscopy service and the addiction treatment business is that the endoscopy business is an Ontario Health Insurance Plan (“OHIP”) insured service. As such, it can only be approved if there is a referring physician on the case.

 

The addiction treatment business operates as a private pay service. The customers get no government or OHIP subsidy to come to our treatment facility. The individual makes the decision and so it is important to market to the individual. There are a large number of mental health professionals that refer to the treatment center and it is important to maintain contact with and market to these professionals. This is the same type of long process of establishing relationships with these professionals and our treatment staff. This can be done at conferences and functions where the treatment professionals come together and make individual contact between professionals.

 

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The treatment business gets about 70% of its clients via the Internet. This is the single biggest focus for the marketing team in 2013. Search Engine Optimization (SEO) is very important and the Company aggressively seeks the maximum cost/benefit relationships with specialist firms that can help in this effort. We believe our efforts in 2012 were successful and effective using this model. We do not believe that it is cost effective to market through traditional channels such as TV, radio or print advertising at this time.

 

Competition

 

Endoscopy – There are numerous private endoscopy clinics in the Greater Toronto Area including endoscopy suites in all of the local area hospitals. Referring physicians have choices where they can refer their patients. Most hospitals have very long wait times and most of the private clinics have shorter wait times. The North York clinic and the Albany Clinic both feature traditionally short wait times, which is an important advantage especially to procedures that are urgent. Easy access is also an issue with hospitals as they are not located close to transit and have high parking fees. Both of our endoscopy clinics are next to subway stations and our North York clinic has free parking. The hospitals generally have the newest generation of equipment while many of the private clinics will have third or fourth generation equipment. The Company clinics have 2 nd generation equipment that is no more than three or four years old and well maintained. There is an expectation that government spending cuts will eventually push the endoscopy clinics out of the hospitals into privately run out-of-hospital facilities. The government will want only well established and larger centers to take over this business and the Company is well positioned to grow from this expected trend.

 

Addiction Treatment – The private pay addiction treatment business is not well established in Canada and there are only a handful of competitors that provide these services. Two of the biggest providers are also government hospital licensed facilities, that do both OHIP insured services and privately paid services. Most hospitals have a mental health unit that can handle detoxification, but do not provide addiction treatment programs. There is only one large competitor that is very similar to GreeneStone Muskoka and they are on the west coast of Canada. There are hundreds of private paid facilities in the United States and they would be the major competitor for those with the highest ability to pay for service. Service in the United States that offer the same level of treatment that is offered by the Company is generally 50% to 100% more expensive. We believe that travel to the United States by those with potential travel restrictions as well as a higher cost will eliminate many U.S. facilities as competition.

 

Environmental Regulations

 

The Company is not currently subject to any pending administrative or judicial enforcement proceedings arising under environmental laws or regulations. Environmental laws and regulations may be adopted in the future which may have an impact upon the Company’s operations.

 

Item 1A. Risk Factors .

 

Not applicable because we are a smaller reporting company.

 

Item 1B. Unresolved Staff Comments .

 

Not applicable.

 

Item 2. Properties .

 

Greenestone Executive Offices and Endoscopy Unit

 

The Company’s executive offices are located at 5734 Yonge Street, Suite 300, Toronto, Ontario, Canada M2M 4E7. The space is approximately 8,000 sq. ft. and takes up the entire third floor of the building (the “Yonge Street Facility”). This facility is leased by 1816191 and the primary activity at this facility is endoscopy procedures. The lease expires on July 31, 2013. The executive offices and employees of the Greenestone Muskoka subsidiary also work from this facility.

 

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Greenestone Muskoka Treatment Facility

 

The Bala Facility is in Bala, Ontario at 3571 Highway 169. The property is 43 acres in size and contains approximately 48,000 square feet of buildings. The property is leased from Cranberry and the term of the lease is for five years with renewal options at the end of the first and second years of the five year term. The lease is a net lease and the Company has a non-disturbance agreement from the mortgage lenders on the property for the whole term. Further, the Company has an option to purchase the property at any time during the term of the lease at appraised values with a minimum purchase value of $4.5 million dollars and a maximum purchase value of $8.0 million dollars during the first two years of the term and $10.0 million dollars during the last three years of the term.

 

Albany Medical Clinic

 

On January 11, 2011, 1816191 (dba Greenestone Clinic) entered into a lease with Albany Building Corporation, pursuant to which the Company leases an approximate 1,000 sq. ft. space at the Albany Medical Clinic, located at 807 Broadway Avenue in Toronto, Ontario, on Saturdays of each week for the performance of endoscopy procedures. According to the terms of the three-year lease, the Company pays $500 per day of use, such lease payment to increase over the term of the lease.

 

Toronto Aftercare and Addiction Treatment Program

 

On March 6, 2012, Greenestone Muskoka entered into a lease with 7640331 Canada Ltd. for space at 39 Hazelton Avenue in Toronto, Ontario, consisting of the first floor of the building which encompasses approximately 2,800 sq. ft. of space. The Company uses these premises for the operation of an aftercare and intensive out-patient addiction treatment program. The lease expires on May 31, 2013 and the monthly lease payment is $10,500.

 

Item 3. Legal Proceedings .

 

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

 

Item 4. Mine Safety Disclosures .

 

Not applicable.

 

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PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities .

 

(a) Market Information

 

The Company’s common stock is quoted on the Over-the-Counter Bulletin Board (the “OTCBB”) under the symbol “GRST”. The Company was sponsored by the market maker Wilson Davis & Co. from Salt Lake City, Utah, which filed a Form 15c2-11 application with the Financial Industry Regulatory Authority (“FINRA”) for the Company in 2011. This application was approved by FINRA in February 2012, and Wilson Davis & Co. first quoted the stock in March 2012.

 

The following table sets forth the range of high and low bid quotations for our common stock for each of the periods indicated as reported by the OTCBB. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 

Period Ending December 31, 2012

 

Quarter Ended   High $   Low $
                     
  March 30       0.95       0.70  
                     
  June 30       1.41       0.85  
                     
  September 30       1.71       1.37  
                     
  December 31       1.83       0.05  

 

Quotations on the OTCBB reflect bid and ask quotations, may reflect inter-dealer prices, without retail markup, markdown or commission and may not represent actual transactions.

 

(b) Holders

 

The number of record holders of the Company’s common stock as of December 31, 2012, was approximately 141. The Depository Trust and Clearing Corporation held 3,843,166 shares for approximately 260 shareholders as of December 31, 2012.

 

(c) Dividends

 

We have never paid any cash dividends on our common shares, and we do not anticipate that we will pay any dividends with respect to those securities in the foreseeable future. Our current business plan is to retain any future earnings to finance the expansion development of our business.

 

(d) Securities Authorized for Issuance Under Equity Compensation Plans

 

As of December 31, 2012, no securities were authorized for issuance under compensation plans previously approved by security holders.

 

Recent Sales of Unregistered Securities

 

The following summaries are the securities transactions during the fiscal year ended December 31, 2012:

 

On May 31, 2012, the Company issued 2,838,867 shares of the Company’s common stock to Richard Siegal upon conversion of $337,560 worth ($.10 per share) of an outstanding convertible promissory note in the principal amount of $337,560. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 

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On May 31, 2012, the Company issued 1,144,600 shares of the Company’s common stock to Shawn Leon upon conversion of $133,860 worth ($.10 per share) of an outstanding convertible promissory note in the principal amount of $133,860. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 

On May 31, 2012, the Company issued 970,000 shares of the Company’s common stock to Brian Medjuck upon conversion of $145,500 worth ($.15 per share) of an outstanding convertible promissory note in the principal amount of $145,500. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 

On May 31, 2012, the Company issued 155,200 shares of the Company’s common stock to Anita Teslak upon conversion of $15,520 worth ($.10 per share) of an outstanding convertible promissory note in the principal amount of $15,520. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 

On May 31, 2012, the Company issued 87,300 shares of the Company’s common stock to Greenestone Clinic Inc. upon conversion of $8,730 worth ($.10 per share) of an outstanding convertible promissory note in the principal amount of $8,730. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 

On May 31, 2012, the Company issued 900,000 shares of the Company’s common stock to Garry Scott upon conversion of $9,000 worth ($.01 per share) of an outstanding convertible promissory note in the principal amount of $9,000. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 

On May 31, 2012, the Company issued 50,000 shares of the Company’s common stock to Davis Family Investments Corp upon conversion of $500 worth ($.01 per share) of an outstanding convertible promissory note in the principal amount of $500. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 

On May 31, 2012, the Company issued 1,000,000 shares of the Company’s common stock to Joshua Bauman upon conversion of $10,000 worth ($.01 per share) of an outstanding convertible promissory note in the principal amount of $10,000. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 

On May 31, 2012, the Company issued 100,000 shares of the Company’s common stock to Ernie Bauman upon conversion of $1,000 worth ($.01 per share) of an outstanding convertible promissory note in the principal amount of $1,000. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 

On May 31, 2012, the Company issued 1,000,000 shares of the Company’s common stock to Harold Barting upon conversion of $10,000 worth ($.01 per share) of an outstanding convertible promissory note in the principal amount of $10,000. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 

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On May 31, 2012, the Company issued 1,000,000 shares of the Company’s common stock to Silverwood Energy Ltd. upon conversion of $10,000 worth ($.01 per share) of an outstanding convertible promissory note in the principal amount of $10,000. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 

On May 31, 2012, the Company issued 1,000,000 shares of the Company’s common stock to Majenta Energy Ltd. upon conversion of $10,000 worth ($.01 per share) of an outstanding convertible promissory note in the principal amount of $10,000. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 

On November 11, 2012, the Company issued 250,900 shares of the Company’s common stock to RTW Capital Corporation upon conversion of $25,090 worth ($.10 per share) of an outstanding convertible promissory note in the principal amount of $25,090. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 

On November 11, 2012, the Company issued 133,333 shares of the Company’s common stock to Michael Perelgut upon conversion of $20,000 worth ($.15 per share) of an outstanding convertible promissory note in the principal amount of $20,000. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 

On November 11, 2012, the Company issued 254,175 shares of the Company’s common stock to Margot Marshall upon conversion of $25,418 worth ($.10 per share) of an outstanding convertible promissory note in the principal amount of $25,418. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 

On November 11, 2012, the Company issued 359,590 shares of the Company’s common stock to James Schacter upon conversion of $53,939 worth ($.15 per share) of an outstanding convertible promissory note in the principal amount of $53,939. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 

On December 1, 2012, the Company issued 100,640 shares of the Company’s common stock to Bram Atlin upon conversion of $10,064 worth ($.10 per share) of an outstanding convertible promissory note in the principal amount of $10,064. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 

On December 1, 2012, the Company issued 251,600 shares of the Company’s common stock to Beverly Chapin-Hill upon conversion of $25,160 worth ($.10 per share) of an outstanding convertible promissory note in the principal amount of $25,160. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 

On December 1, 2012, the Company issued 251,600 shares of the Company’s common stock to Ed Blasiak upon conversion of $25,160 worth ($.10 per share) of an outstanding convertible promissory note in the principal amount of $25,160. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 

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On December 1, 2012, the Company issued 503,200 shares of the Company’s common stock to Jay Parekh upon conversion of $50,320 worth ($.10 per share) of an outstanding convertible promissory note in the principal amount of $50,320. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 

On December 1, 2012, the Company issued 100,640 shares of the Company’s common stock to M Prabkhar Medicine Professional Corp. upon conversion of $10,064 worth ($.10 per share) of an outstanding convertible promissory note in the principal amount of $10,064. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 

On December 1, 2012, the Company issued 251,600 shares of the Company’s common stock to Sohail Iqbal upon conversion of $25,160 worth ($.10 per share) of an outstanding convertible promissory note in the principal amount of $25,160. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 

On December 1, 2012, the Company issued 503,200 shares of the Company’s common stock to Solomon Mathelon upon conversion of $50,320 worth ($.10 per share) of an outstanding convertible promissory note in the principal amount of $50,320. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 

On December 1, 2012, the Company issued 250,000 shares of the Company’s common stock to Dragon Alternative Fund upon conversion of $25,000 worth ($.10 per share) of an outstanding convertible promissory note in the principal amount of $25,000. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 

On December 1, 2012, the Company issued 100,266 shares of the Company’s common stock to A. Sood upon conversion of $10,627 worth ($.10 per share) of an outstanding convertible promissory note in the principal amount of $10,627. These shares were issued pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that the issuance did not involve a public offering.

 

Rule 10B-18 Transactions

 

During the year ended December 31, 2012, there were no repurchases of the Company’s common stock by the Company.

 

Penny Stock

 

The U.S. Securities and Exchange Commission (the “SEC”) has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.

 

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The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer’s account.

 

In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.

 

These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling our securities.

 

Item 6. Selected Financial Data.

 

Not applicable because we are a smaller reporting company.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward-Looking Statements

 

This annual report on Form 10-K and other reports filed by Greenestone Healthcare Corp. (“we,” “us,” “our,” or the “Company”) from time to time with the SEC contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

 

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

 

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates. This discussion and analysis should be read in conjunction with the Company’s financial statements and accompanying notes to the financial statements for the year ended December 31, 2012.

 

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Plan of Operation

 

During the next twelve months, the Company plans to continue its operations as a provider of addiction and after-care treatment services, as well as a provider of endoscopy and other specialized medical procedures at its various locations. The Company plans to focus on the growth of its existing business units while simultaneously paring costs in operations.

 

In 2013, the Company plans to aggressively market the current endoscopy segment of the business to family practitioners, as they are a major referral source for the Company’s business. The Company also plans to begin a marketing campaign focused on corporations and insurance companies as referral sources, as well as create an internet-based marketing campaign. Further, the Company plans to add additional specialist offices at the Company’s North York location, as well as an operating room, thereby providing the opportunity to deliver additional services to patients and increase overall revenue.

 

At the end of 2012, the Company’s endoscopy business segment at the Yonge Street Facility was only operating at approximately 40% of its potential capacity. During 2013, the Company plans to expand the operations at the Yonge Street Facility in order to maximize potential revenues.

 

The Company believes that it will need a minimum of $2,500,000 to cover its planned operations over the next 12 months. This estimate includes (i) $200,000 for marketing; (ii) $500,000 for leasehold improvements at its new facility; (iii) 1,300,000 for tax obligations; and (iv) $500,000 for general costs at its new facility.

 

The Company, in an attempt to hire top talent in the addition treatment segment of its business, hired excess employees in the start-up phase in 2012. The Company has already replaced its initial U.S. based clinical team with a permanent Canadian based team, the best of which have been retained as the core of the Company’s current clinical team. We believe that the additional reductions in staffing the Company plans to make to its existing operations in 2013 in order to increase operational efficiency will result in a net reduction in payroll of approximately $1,000,000 in 2013 compared to 2012. These reductions do not factor in any future acquisitions the Company may make in 2013.

 

In addition to planned staff reductions, the Company plans to reduce rent expenses in 2013. On April 1, 2013, a rent increase to the Bala Property raises the monthly lease payment to $55,000. In 2013, the Company plans to purchase the Bala Property from Cranberry and refinance the existing debt on the Bala Property. The Company believes that the cash cost of the mortgage will be less than $30,000 per month. Additionally, the Company plans to lease new space in Toronto, Ontario, for an inpatient and outpatient treatment center. When this occurs, the Company’s current outpatient facility will be moved to this new location, along with Company’s executive offices, thereby reducing rent by approximately $22,000 per month.

 

Results of Operations

 

For the Fiscal Year Ended December 31, 2012, Compared to the Fiscal Year Ended December 31, 2011

 

Revenue

 

During the year ended December 31, 2012, revenues increased to $ 5,540,909 from $ 1,678,804 during the year ended December 31, 2011, an increase of $3,862,105. This increase is mainly attributable to a steady increase in business volume since the Company began operations. Further, the Company began its current operations in June 2011 and therefore the revenues earned during the year ended December 31, 2011, do not reflect a full year of operation. A large portion of revenue earned was through endoscopy procedures paid for by the Ontario Health Insurance Plan (“OHIP”), a provincially funded health plan backed by the Ontario government. The Company believes that revenue will continue to grow steadily and the Company will become more profitable as most of its costs, such as rent and salaries and wages are relatively fixed, and therefore will reduce as a percentage as business volume grows.

 

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Cost of Revenue

 

The cost of revenue represents payments made to the doctors for endoscopy procedures performed. These amounts are calculated based on amounts billed to the Ontario Ministry of Health under the Ontario Health Insurance Plan (OHIP). In general, the doctor performing the actual medical procedure will receive approximately 60% of the amount received from OHIP adjusted for amounts deducted received in facility fees.

 

Gross Profit

 

During the year ended December 31, 2012, gross profits increased to $4,490,907 from $1,030,031 during the year ended December 31, 2011, an increase of $3,460,876. This increase is mainly attributable to an increase in business volume since the Company began operations. Further, the Company began its current operations in June 2011 and therefore gross profits earned during the year ended December 31, 2011, do not reflect a full year of operation.

 

Operating Expenses

 

Operating expenses for the year ended December 31, 2012, were $5,975,260, compared to $3,748,098 for the year ended December 31, 2011, an increase of $2,227,162. This increase in expenses is mainly attributable to increased operations. General and administrative expenses for the year ended December 31, 2012, primarily consisted of salaries and wages to medical support staff of $3,410,659; rent payments of $847,558; management fees of $179,924; and general and administrative expenses of $546,563.

 

Net Loss

 

During the year ended December 31, 2012, the net loss decreased to $1,553,797 from $2,462,288 during the year ended December 31, 2011, a decrease of $908,491. This reduction is attributable to the steady increase in revenues and will become more profitable as revenues continue to grow as the company can take advantage of economies of scale as most of its costs rent salaries and wages are relatively fixed. In addition the company will no longer be incurring certain cost that were considered one time start-up costs.

 

Liquidity and Capital Resources

 

The following table summarizes working capital at December 31, 2012, compared to December 31, 2011.

 

       
    December 31, 2012   December 31, 2011   Increase/
(Decrease)
             
Current Assets   $ 1,124,993     $ 930,916     $ 194,077  
                         
Current Liabilities   $ 4,561,748     $ 3,876,865     $ 684,883  
                         
Working Capital (Deficit)   $ (4,015,405 )   $ (3,587,001 )   $ (428,404 )

 

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.

 

Accounts receivable at December 31, 2012 and December 31, 2011, was $380,043 and $188,423, respectively, representing an increase of $191,620. The Company is economically dependent on and earns a significant portion of revenues from the Ontario Ministry of Health for its ability to carry out its normal activities. These revenues account for approximately 35% of the Company’s consolidated sales in the twelve month period ending December 31, 2012.

 

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Critical Accounting Policies

 

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

 

Principals of Consolidation

 

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

 

The Company’s subsidiaries functional currency is the Canadian dollar (CAD), while the Company’s reporting currency is the U.S. dollar (USD). All transactions initiated in Canadian dollars are translated into U.S. dollars in accordance with ASC 830, “Foreign Currency Translation” as follows:

 

(i) Monetary assets and liabilities at the rate of exchange in effect at the balance sheet date;

 

(ii) Equity at historical rates; and

 

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

 

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

 

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

 

Revenue Recognition

 

The Company recognizes revenue from the rendering of services when they are earned; specifically when all 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 gastrointestinal clinical services, out-patient counseling, 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.

 

Rental income is recognized when on a straight-line basis over the term of the rental period, at which time title to the service, significant risks of ownership and ultimate collection is reasonably assured.

 

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Use of Estimates

 

The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the recognition, measurement and disclosure of amounts reported in the financial statements and accompanying notes. The reported amounts, including depreciation, allowance for doubtful accounts, inventory, furniture and equipment additions, accounts payable and accrued liabilities, deferred revenue 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.

 

Non-Monetary Transactions

 

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

 

(i) The transaction lacks commercial substance;

 

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

 

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

 

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

 

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.

 

Accounts Receivable

 

The Company’s policy is to disclose accounts receivable net of a reserve for doubtful accounts.

 

Inventory

 

Inventory is valued at the lower of cost and net realizable value. Cost is determined using the first-in, first-out method.

 

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 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 due to related party.

 

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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 December 31, 2012, and December 31, 2011. The Company did not have any fair value adjustments for assets and liabilities measured at fair value on a non-recurring basis during the twelve month period ended December 31, 2012 and December 31, 2011.

 

Fixed A ssets

 

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.

 

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.

 

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.

 

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Earnings per Share Information

 

FASB ASC 260, “ 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. Basic and diluted loss per share was the same, at the reporting dates, as there were no common share equivalents outstanding.

 

Share Based Expenses

 

ASC 718 “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.

 

Recent Accounting Pronouncements

 

In December 2011 the Financial Accounting Standards Board “FASB” issued new guidance on the disclosures about offsetting assets and liabilities. The new guidance enhances disclosures required by US GAAP by requiring improved information about financial instruments and derivative instruments. The new guidance is to be adopted for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods. The new guidance is to be retrospectively applied for all comparative periods presented. The Company does not expect adoption of the new guidance to have a material impact on the consolidated interim and annual financial statements.

 

Off-Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable because we are a smaller reporting company.

 

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Item 8. Financial Statements and Supplementary Data.

 

 

 

 

 

 

 

 

 

 

 

 

 

GREENESTONE HEALTHCARE CORPORATION

 

CONSOLIDATED FINANCIAL STATEMENTS

 

December 31, 2012

(Stated in U.S. $)

 

 

 

 

 

 

 

 

 

 

 

 

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GREENESTONE HEALTHCARE CORPORATION

 

CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012

(Stated in U.S. $)

 

CONTENTS

 

 

 

 

   

Page

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-2
     
FINANCIAL STATEMENTS  
   
Consolidated Balance Sheets as of December 31, 2012 and December 31, 2011 F-3
     
Consolidated Statements of Changes in Stockholders’ Deficit F-4
   
Consolidated Statements of Operations for the Years Ended December 31, 2012 and December 31, 2011 F-5
     
Consolidated Statements of Cash Flows for the Years Ended December 31, 2012 and December 31, 2011 F-6
     
Notes to the Consolidated Financial Statements F-7 - F-18
         

 

 

 

 

 

 

 

 

 

 

 

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GREENESTONE HEALTHCARE CORPORATION 

CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012

(Stated in U.S. $)

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Shareholders of

GreeneStone Healthcare Corporation

 

We have audited the accompanying consolidated balance sheet of GreeneStone Healthcare Corporation as of December 31, 2012, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statement referred to above presents fairly, in all material respects, the consolidated financial position of GreeneStone Healthcare Corporation as of December 31, 2012, and the results of its operations and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in consolidated financial statement Note 2, the Company has incurred losses since inception. This raises substantial doubt about the Company’s ability to meet its obligations and to continue as a going concern. Management’s plans in regard to this matter are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

“Jarvis Ryan Associates”

Mississauga, Ontario, Canada

March 19, 2013

C HARTERED ACCOUNTANTS

LICENSED PUBLIC ACCOUNTANTS

 

 

 

 

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GREENESTONE HEALTHCARE CORPORATION

CONSOLIDATED BALANCE SHEET

AS AT DECEMBER 31, 2012

(Stated in U.S. $)

 

    December 31,
2012
  December 31, 2011
         
ASSETS                
CURRENT                
Accounts receivable (note 6)   $ 380,043     $ 188,423  
Harmonized sales tax receivable     —         5,933  
Prepaid expenses     111,214       83,724  
Inventory     16,169       11,784  
      507,426       289,864  
FIXED ASSETS (note 7, 9)     617,567       641,052  
                 
    $ 1,124,993     $ 930,916  
 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
               
CURRENT                
Bank indebtedness   $ 70,803     $ 28,281  
Accounts payable and accrued liabilities     863,858       632,497  
Harmonized sales tax payable     313,295       —    
Withholding taxes payable     1,039,756       270,118  
Deferred revenue     215,793       116,692  
Convertible notes payable (note 8)     1,820,713       2,498,975  
Current portion of loan payable (note 9)     8,129       —    
Due to related party (note 10)     190,484       330,302  
      4,522,831       3,876,865  
LOAN PAYABLE (note 9)     38,917       —    
      4,561,748       3,876,865  
STOCKHOLDERS’ DEFICIT                
Common shares; $0.01 par value,
100,000,000 shares authorized;
27,234,279 shares issued and
               
  outstanding (note 11)     272,343       135,216  
Additional paid-in capital     6,642,530       5,716,666  
Accumulated other comprehensive loss     (47,726 )     21,718  
Accumulated deficit     (10,303,902 )     (8,819,549 )
      (3,436,755 )     (2,945,949 )
                 
    $ 1,124,993     $ 930,916  
COMMITMENTS (note 12)                

 

See accompanying notes to the consolidated financial statements

Subject to Report of Independent Registered Public Accounting Firm dated March 19, 2013

 

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GREENESTONE HEALTHCARE CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE YEAR ENDED DECEMBER 31, 2012

(Stated in U.S. $)

 

    Common Stock                
    Shares   Amount   Additional Paid-In Capital   Accumulated Other Comprehensive (Loss) Income   Accumulated Deficit   Total
Balance, December 31, 2010     5,021,764     $ 50,218     $ 5,631,664     $ (12,855 )   $ (6,322,688 )   $ (653,661 )
     Common shares issued
     for convertible note
    8,500,000       85,000       85,000       —         —         170,000  
     Adjustments     (196 )     (2 )     2       —         —         —    
     Foreign currency
     translation
    —         —         —         34,573       —         34,573  
Net loss     —         —         —         —         (2,496,861 )     (2,496,861 )
Balance, December 31, 2011     13,521,568     $ 135,216     $ 5,716,666     $ 21,718     $ (8,819,549 )   $ (2,945,949 )
                                                 
Balance, December 31, 2011     13,521,568     $ 135,216     $ 5,716,666     $ 21,718     $ (8,819,549 )   $ (2,945,949 )
      Common shares issued for       convertible note (note 11)     13,712,711       137,127       925,864       —         —         1,062,991  
      Foreign currency
      translation
    —         —         —         (69,444 )     —         (69,444 )
Net loss     —         —         —         —         (1,484,353 )     (1,484,353 )
Balance, December 31, 2012     27,234,279     $ 272,343     $ 6,642,530     $ (47,726 )   $ (10,303,902 )   $ (3,436,755 )

 

See accompanying notes to the consolidated financial statements

Subject to Report of Independent Registered Public Accounting Firm dated March 19, 2013

 

F- 4
Table of Contents

 

GREENESTONE HEALTHCARE CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2012

(Stated in U.S. $)

 

    December 31, 2012   December 31, 2011
REVENUES   $ 5,540,909     $ 1,678,804  
COST OF SERVICES PROVIDED     1,050,002       648,773  
GROSS PROFIT     4,490,907       1,030,031  
                 
OPERATING EXPENSES                
  Continuing education     25,739       7,049  
  Depreciation     223,984       129,766  
  General and administrative     546,563       510,147  
  Interest and fees     214,207       26,568  
  Management fees (note 10)     179,924       461,895  
  Meals and entertainment     3,385       1,462  
  Medical supplies     132,253       81,139  
  Professional fees     128,578       434,804  
  Rent (note 10)     847,558       465,035  
  Salaries and wages     3,410,659       1,532,678  
  Subcontract fees     42,890       9,386  
  Supplies     181,590       72,076  
  Travel     37,930       16,093  
      5,975,260       3,748,098  
                 
      (1,484,353 )     (2,718,067 )
OTHER INCOME
Rental income
    —         221,206  
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS   $ (1,484,353 )   $ (2,496,861 )
                 
OTHER COMPREHENSIVE
INCOME (LOSS)
               
 Foreign currency translation     (69,444 )     34,573  
                 
TOTAL COMPREHENSIVE LOSS   $ (1,553,797 )   $ (2,462,288 )
                 
BASIC AND DILUTED LOSS PER COMMON SHARE   $ (0.08 )   $ (0.34 )
WEIGHTED AVERAGE
SHARES OUTSTANDING
    19,453,717       7,443,626  

 

 

See accompanying notes to the consolidated financial statements

Subject to Report of Independent Registered Public Accounting Firm dated March 19, 2013

 

F- 5
Table of Contents

 

GREENESTONE HEALTHCARE CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

FOR THE YEAR ENDED DECEMBER 31, 2012

(Stated in U.S. $)

 

    December 31, 2012   December 31, 2011
OPERATING ACTIVITIES                
Net loss   $ (1,484,353 )   $ (2,496,861 )
Adjustment to reconcile net loss to
cash used in operating activities:
               
Depreciation     223,984       129,766  
      (1,260,369 )     (2,367,095 )
Changes in operating assets and
liabilities
               
Accounts receivable     (191,620 )     (147,516 )
Harmonized sales tax     319,228       (5,933 )
Prepaid expenses     (27,490 )     (31,288 )
Inventory     (4,385 )     (819 )
Accounts payable and accrued liabilities     231,361       333,967  
Withholding taxes payable     769,638       270,118  
Deferred revenue     99,101       116,692  
    (64,536 )   (1,831,874 )
INVESTING ACTIVITIES                
Purchase of fixed assets     (200,499 )     (428,122 )
FINANCING ACTIVITIES                
Proceeds from bank indebtedness     42,522       28,266  
Repayment of convertible notes payable     (678,262 )     2,053,374  
Proceeds of loan payable     47,046       —    
Repayment of related party notes     (139,818 )     (74,593 )
Proceeds from issuance of common shares     137,127       84,998  
Proceeds from additional paid-in capital     925,864       85,002  
    334,479     2,177,047  
Effect of exchange rate on cash     (69,444 )     34,573  
 
DECREASE IN CASH
    —         (48,376 )
CASH, beginning of year             48,376  
CASH, end of year   $ —       $ —    
                 
SUPPLEMENTAL CASH FLOW INFORMATION:                
Cash paid for interest and fees   $ 214,207     $ 26,568  
Cash paid for income taxes   $ —       $ —    

 

See accompanying notes to the consolidated financial statements

Subject to Report of Independent Registered Public Accounting Firm dated March 19, 2013

 

 

F- 6
Table of Contents

 

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(Stated in U.S. $)

 

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 December 31, 2012, the Company owns 100% of the outstanding shares of each of 1816191 Ontario Limited and Greenestone Clinic Muskoka Inc., both of which were incorporated in 2010 under the laws of the Province of Ontario, Canada. 1816191 Ontario Limited and Greenestone Clinic Muskoka Inc. provide medical services to various patients in clinics located in two regions in Ontario, Canada; the city of Toronto and the regional municipality of Muskoka. These consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles ("US GAAP").

 

2. Going concern

 

The Company’s 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 December 31, 2012, the Company has a working capital deficiency of $4,015,405 (2011: $3,587,001) and accumulated deficit of $10,303,902
(2011: $8,819,549). 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. 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 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.

 

3. 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.

 

Principals of consolidation

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

 

The Company’s subsidiaries functional currency is the Canadian dollar (CAD), while the Company’s reporting currency is the US dollar (USD). All transactions initiated in Canadian dollars are translated into US dollars in accordance with ASC 830, "Foreign Currency Translation" as follows:

 

(i) Monetary assets and liabilities at the rate of exchange in effect at the balance sheet date.
(ii) Equity at historical rates.
(iii) Revenue and expense items at the average rate of exchange prevailing during the period.

 

Principals of consolidation (cont’d)

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.

 

Subject to Report of Independent Registered Public Accounting Firm dated March 19, 2013

 

F- 7

 

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(Stated in U.S. $)

 

3. Significant accounting policies (cont’d)

 

Revenue recognition

The Company recognizes revenue from the rendering of services when they are earned; specifically when all 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 gastrointestinal clinical services, out-patient counseling, 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.

 

Rental income is recognized when on a straight-line basis over the term of the rental period, at which time title to the service, significant risks of ownership and ultimate collection is reasonably assured.

 

Use of estimates

The preparation of consolidated 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 financial statements and accompanying notes. The reported amounts, including depreciation, allowance for doubtful accounts, inventory, furniture and equipment additions, accounts payable and accrued liabilities, deferred revenue 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.

 

Non-monetary transactions

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

 

(i) The transaction lacks commercial substance;
(ii) The transaction is an exchange of a product or property held for sale in the ordinary course of business for a product or property to be sold in the same line of business to facilitate sales to customers other than the parties to the exchange;
(iii) Neither the fair value of the asset received nor the fair value of the asset given up is reliably measurable; or
(iv) The transaction is a non-monetary non-reciprocal transfer to owners that represents a spin-off or other form of restructuring or liquidation.

 

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.

 

Subject to Report of Independent Registered Public Accounting Firm dated March 19, 2013

 

F- 8

 

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(Stated in U.S. $)

 

3. Significant accounting policies (cont’d)

 

Accounts receivable

The Company's policy is to disclose accounts receivable net of a reserve for doubtful accounts.

 

Inventory

Inventory is valued at the lower of cost and net realizable value. Cost is determined using the first-in, first-out method.

 

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 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 due to related party.

 

Financial instruments (cont’d)

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 December 31, 2012 and December 31, 2011. The Company did not have any fair value adjustments for assets and liabilities measured at fair value on a non-recurring basis during the twelve month period ended December 31, 2012 and December 31, 2011.

 

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.

 

Subject to Report of Independent Registered Public Accounting Firm dated March 19, 2013

 

F- 9

 

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(Stated in U.S. $)

 

3. Significant accounting policies (cont’d)

 

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.

 

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.

 

Earnings per share information

FASB ASC 260, “ 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. Basic and diluted loss per share was the same, at the reporting dates, as there were no common share equivalents outstanding.

 

Share based expenses

ASC 718 "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.

 

4. Recently issued accounting pronouncements

 

In December 2011 the Financial Accounting Standards Board “FASB” issued new guidance on the disclosures about offsetting assets and liabilities. The new guidance enhances disclosures required by US GAAP by requiring improved information about financial instruments and derivative instruments. The new guidance is to be adopted for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods. The new guidance is to be retrospectively applied for all comparative periods presented. The Company does not expect adoption of the new guidance to have a material impact on the consolidated interim and annual financial statements.

 

Subject to Report of Independent Registered Public Accounting Firm dated March 19, 2013

 

F- 10

 

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(Stated in U.S. $)

 

5. 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, December 31, 2012:

 

(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 bank indebtedness and accounts receivable.

 

In the opinion of management, credit risk associated with bank indebtedness of $70,803 (2011: $28,281) is assessed as low and unchanged from the prior year. The Company ensures that financial assets and liabilities are placed with financial institutions with high credit ratings in order to mitigate the risk.

 

With respect to accounts receivable of $380,043 (2011: $188,423), the Company receives most of its revenues in 1816191 Ontario Inc. from the Ontario Ministry of Health and Long-Term Care, a provincially regulated program. (Note 6) The Company performs frequent reviews of billing reports submitted to the Ontario Ministry of Health and Long-Term Care, to ensure accuracy and filing on a timely basis. Allowances are provided for potential losses that have been incurred at the balance sheet date.

 

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

 

(b) Liquidity risk

 

Liquidity risk is the risk the Company will not be able to meet its financial obligations as they fall due. The Company is exposed to liquidity risk through its working capital deficiency of $4,015,405 (2011: $3,587,001) and accumulated deficit of $10,303,902 (2011: $8,819,549). As disclosed in note 2, 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 and remains unchanged from the prior year.

 

(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 is exposed to interest rate risk on its bank indebtedness of $70,803 (2011: $28,281). 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.

 

Subject to Report of Independent Registered Public Accounting Firm dated March 19, 2013

 

F- 11

 

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(Stated in U.S. $)

 

5. Financial instruments (cont’d)

 

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. All of the Company’s financial assets and liabilities are denominated in Canadian dollars. Based on the net exposures at December 31, 2012, a 10% depreciation or appreciation of the Canadian dollar against the U.S. dollar would result in an approximate $10,000 increase or decrease in the Company’s after-tax net earnings, respectively. 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. The Company is not exposed to this risk and is unchanged from the prior year.

 

6. Accounts receivable

 

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

 

    December 31, 2012   December 31, 2011
The Ontario Ministry of Health   $ 181,129     $ 173,242  
Treatment program     115,914       15,181  
Outpatient services     59,683       —    
          Other accounts receivable     23,317       —    
    $ 380,043     $ 188,423  

 

The Company is economically dependent on and earns a significant portion of revenues from the Ontario Ministry of Health for its ability to carry out its normal activities. These revenues account for 35% of the Company’s consolidated sales in the twelve month period ending December 31, 2012 (2011: 70%).

 

7. Fixed assets

 

            Net Book Value
    Opening Cost   Accumulated Amortization   December 31, 2012   December 31, 2011
Computer equipment   $ 22,667     $ 6,065     $ 16,602     $ 11,910  
Computer software     27,701       23,605       4,096       14,315  
Furniture and equipment     416,518       152,042       264,476       322,282  
Medical equipment     368,802       163,105       205,697       231,192  
Vehicles     49,967       7,495       42,472       —    
Leasehold improvements     142,047       57,823       84,224       61,353  
    $ 1,027,702     $ 410,135     $ 617,567     $ 641,052  
                                 

 

Subject to Report of Independent Registered Public Accounting Firm dated March 19, 2013

F- 12

 

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(Stated in U.S. $)

 

8. Convertible notes payable

 

The notes are convertible at the option of the holder up to the maturity date; any convertible debentures still outstanding as at their maturity date will automatically convert into common shares of the Company. Accordingly, these convertible notes payable are considered current liabilities by nature. The Company has adequate common shares in its treasury to cover the conversions if all notes are exercised.

 

The Company has the following convertible notes outstanding.

 

Note  Amount Issuance Date Conversion Price in USD Number of Shares Effect on Dilution  Maturity Date
                 
1 $ 48,245 January 31, 2011 $ 0.10 482,448 1.90% January 31, 2013
2   25,128 March 30, 2011 $ 0.15 167,517 0.67% March 30, 2013
3   50,000 March 30, 2011 $ 0.15 333,333 1.32% March 30, 2013
4   15,000 March 30, 2011 $ 0.15 100,000 0.40% March 30, 2013
5   30,153 March 30, 2011 $ 0.15 201,020 0.80% March 30, 2013
6   10,051 March 31, 2011 $ 0.15 67,007 0.27% March 31, 2013
7   10,051 March 31, 2011 $ 0.15 67,007 0.27% March 31, 2013
8   10,051 March 31, 2011 $ 0.15 67,007 0.27% March 31, 2013
9   100,510 March 31, 2011 $ 0.15 670,067 2.62% March 31, 2013
10   50,255 March 31, 2011 $ 0.15 335,033 1.33% March 31, 2013
11   30,153 March 31, 2011 $ 0.15 201,020 0.80% March 31, 2013
12   5,026 March 31, 2011 $ 0.15 33,503 0.13% March 31, 2013
13   6,031 June 15, 2011 $ 0.10 60,306 0.24% June 15, 2013
14   8,041 June 15, 2011 $ 0.10 80,408 0.32% June 15, 2013
15   4,020 June 15, 2011 $ 0.10 40,204 0.16% June 15, 2013
16   201,020 June 24, 2011 $ 0.15 1,340,133 5.10% June 24, 2013
17   30,153 June 30, 2011 $ 0.15 201,020 0.80% June 30, 2013
18   16,082 June 30, 2011 $ 0.15 107,211 0.43% June 30, 2013
19   70,357 June 30, 2011 $ 0.15 469,047 1.85% June 30, 2013
20   14,574 June 30, 2011 $ 0.15 97,160 0.39% June 30, 2013
21   50,255 June 30, 2011 $ 0.15 335,033 1.33% June 30, 2013
22   145,740 June 30, 2011 $ 0.15 971,597 3.75% June 30, 2013
23   5,026 July 30, 2011 $ 0.15 33,503 0.13% July 30, 2013
24   5,026 July 30, 2011 $ 0.15 33,503 0.13% July 30, 2013
25   5,026 July 30, 2011 $ 0.15 33,503 0.13% July 30, 2013
26   10,000 July 30, 2011 $ 0.15 66,667 0.27% July 30, 2013
27   10,051 July 30, 2011 $ 0.15 67,007 0.27% July 30, 2013
28   9,046 July 30, 2011 $ 0.15 60,306 0.24% July 30, 2013
29   2,261 July 30, 2011 $ 0.15 15,077 0.06% July 30, 2013
                 
 

*The actual number of shares issued if converted will vary depending on the exchange rate at time of conversion.

 

 

Subject to Report of Independent Registered Public Accounting Firm dated March 19, 2013

 

F- 13

 

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(Stated in U.S. $)

 

8. Convertible notes payable (cont’d)

 

Note  Amount Issuance Date Conversion Price in USD Number of Shares Effect on Dilution  Maturity Date
30   50,255 October 26, 2011 $ 0.10 502,550 1.98% October 26, 2013
31   100,510 October 31, 2011 $ 0.15 670,067 2.62% October 31, 2013
32   70,357 November 24, 2011 $ 0.15 469,047 1.85% November 24, 2013
33   15,077 November 30, 2011 $ 0.15 100,510 0.40% November 30, 2013
34   15,077 November 30, 2011 $ 0.15 100,510 0.40% November 30, 2013
35   23,720 November 30, 2011 $ 0.15 158,136 0.63% November 30, 2013
36   25,160 December 31, 2011 $ 0.15 167,733 0.67% December 31, 2013
37   20,102 December 31, 2011 $ 0.15 134,013 0.53% December 31, 2013
38   10,051 December 31, 2011 $ 0.15 67,007 0.27% December 31, 2013
39   22,615 December 31, 2011 $ 0.15 150,765 0.60% December 31, 2013
40   45,230 December 31, 2011 $ 0.15 301,530 1.19% December 31, 2013
41   50,255 December 31, 2011 $ 0.15 335,033 1.33% December 31, 2013
42   20,102 December 31, 2011 $ 0.15 134,013 0.53% December 31, 2013
43   15,077 December 31, 2011 $ 0.15 100,510 0.40% December 31, 2013
44   50,000 January 15, 2012 $ 0.20 250,000 0.99% January 15, 2014
45   10,051 January 24, 2012 $ 0.20 50,255 0.20% January 24, 2014
46   7,538 January 26, 2012 $ 0.20 37,691 0.15% January 26, 2014
47   30,153 January 31, 2012 $ 0.20 150,765 0.60% January 31, 2014
48   10,051 February 10, 2012 $ 0.20 50,255 0.20% February 10, 2014
59   100,510 March 4, 2012 $ 0.20 502,550 1.98% March 4, 2014
50   100,510 April 18, 2012 $ 0.45 223,356 0.89% April 18, 2014
51   50,255 May 31, 2012 $ 1.00 50,255 0.20% May 31, 2014
 

 

$

 

1,820,713

     

 

11,945,746

   

 

 

*The actual number of shares issued if converted will vary depending on the exchange rate at time of conversion.

 

During the year ended December 31, 2011, the Company issued 8,500,000 common shares from convertible notes payable at a conversion rate of $0.02 per share.

 

During the year ended December 31, 2012, the Company issued 5,050,000 common shares from convertible notes payable at a conversion rate of $0.01 per share.

 

On December 1, 2012 convertible debentures totaling $231,875 had matured and were to be converted to restricted shares. This is dependent on a Directors Resolution being issued by the Company. As of December 31, 2012 a Directors Resolution had not been formally issued and was issued subsequent to year end. Since the convertible debentures include an automatic conversion on maturity feature, and to accurately reflect the maturity of the debt and conversion to shares as of December 1, 2012, the financial information presented in these statements has treated the debt of $231,875 as matured and converted into restricted shares totaling 2,318,746.

 

Subject to Report of Independent Registered Public Accounting Firm dated March 19, 2013

 

F- 14

 

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(Stated in U.S. $)

 

9. Loan payable

 

The Company has an automobile loan payable bearing interested at 4.49% with blended monthly payments of $835 that matures March 2018. The loan is secured by the vehicle with a net book value as at December 31, 2012 of $42,472. Estimated principal and interest re-payments to December 31 st are as follows:

 

  2013     $ 8,129  
  2014       8,502  
  2015       8,891  
  2016       9,299  
  2017       9,725  
  Thereafter       2,500  
        $ 47,046  

 

10. Related party transactions

 

The balance due to related party as at December 31, 2012 and December 31, 2011 is to Greenestone Clinic Inc. The Company is related to Greenestone Clinic Inc. since it is controlled by one of the Company’s directors. The balance owing is non-interest bearing, not secured and has no specified terms of repayment.

 

The Company had management fees totaling $179,924 during the twelve month period ended December 31, 2012 (2011: $178,032) to the director for services which are included in management fees.

 

The Company entered into an agreement to lease premises from Cranberry Cove Holdings Ltd. at market terms. During the twelve month period ended December 31, 2012, the Company had rent expense of $431,827 (2011: $201,770) to Cranberry Cove Holdings Inc. 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.

 

11. Stockholders’ deficit

 

Common shares

On June 30, 2012, the Company filed a Certificate of Amendment with the Colorado Secretary of State to increase the aggregate number of shares which the Company has authority to issue to one hundred million (100,000,000) common shares, issued at $0.01 par value per share from 50,000,000 common shares with par value at $0.01. The amendment was approved by the Colorado Secretary of State in May 2012.

 

Issued common shares

The Company has a total of 27,234,279 issued and outstanding common shares as at December 31, 2012. In the prior year, December 31, 2011, the Company issued 13,521,568 of common shares at $0.01 per share. Of the issued common shares, $1,062,831 notes were converted into 7,187,711 restricted common shares and 6,525,000 unrestricted common shares.

 

Subject to Report of Independent Registered Public Accounting Firm dated March 19, 2013

 

F- 15

 

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(Stated in U.S. $)

 

11. Stockholders’ deficit (cont’d)

 

Net loss per common share

Net loss per share is computed using the basic and diluted weighted average number of common shares outstanding during the period. The weighted-average number of common shares outstanding during each year is used to compute basic loss per share.  Diluted loss per share is computed using the weighted average number of shares and dilutive potential common shares outstanding unless common stock equivalent shares are anti-dilutive.  Dilutive potential common shares are additional common shares that will be exercised. Basic net loss per common share is based on the weighted average number of shares of common shares outstanding during the twelve month period ended December 31, 2012 and December 31, 2011.

 

12. Commitments

 

The Company is committed under three non-cancellable operating lease agreements for rental of premises. The rental of premise agreement for the subsidiary, 1816191 Ontario Inc. expires July 2013 and the premise agreements for the subsidiary, Greenestone Clinic Muskoka Inc. expire May 2013, July 2013 and March 2016 (note 10).

 

Future minimum annual payment requirements are as follows:

 

  2013     $ 841,269  
  2014       663,366  
  2015       663,366  
  2016       165,842  
        $ 2,333,843  

 

13. Income taxes

 

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

 

The Company has not taken a tax position that, if challenged, would have a material effect on the financial statements for the twelve month period ended December 31, 2012 and December 31, 2011, 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 December 31, 2012, and December 31, 2011 are as follows:

 

    December 31,
2012
  December 31,
2011
Net operating loss carry forward   $ 10,303,902     $ 8,819,549  
Valuation allowance     (10,303,902 )     (8,819,549 )
Net future tax asset   $ —       $ —    

 

Subject to Report of Independent Registered Public Accounting Firm dated March 19, 2013

 

F- 16

 

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(Stated in U.S. $)

 

13. Income taxes (cont’d)

 

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

 

    December 31,
2012
  December 31, 2011
Tax at statutory rate   $ 519,529     $ 873,901  
Valuation allowance     (519,529 )     (873,901 )
Net future tax asset   $ —       $ —    

 

The Company did not pay any income taxes during the twelve month period ended December 31, 2012 and the year ended December 31, 2011.

 

The net federal operating loss carry forwards will expire in 2023 through 2032. This carry forward may be limited upon the consummation of a business combination under IRC Section 381.

 

14. Management of capital

 

The Company’s objectives of capital management are to safeguard its ability to support the Company’s normal operating requirements on an ongoing basis. The Company defines capital as the total of its total assets less total liabilities.

 

The Company manages its capital structure and makes adjustments in light of changes in its economic environment and the risk characteristics of the Company’s assets. To effectively manage the Company’s capital requirements, the Company has in place a planning, budgeting and forecasting process to help determine the funds required to ensure the Company has the appropriate liquidity to meet its operating and growth objectives. The Company is dependent upon the raising of additional capital through placement of common shares, and, or debt financing to support its normal operating requirements. 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. As at December 31, 2012 and December 31, 2011, there was no externally imposed capital requirement to which the Company is subject and with which the Company has not complied.

 

15. Asset retirement obligations

 

As at December 31, 2012 and December 31, 2011, the Company has no legal obligations associated with the retirement of its tangible long-lived assets that it is required to settle.

 

16. Segmented information

 

The Company has two reportable segments: gastrointestinal clinical services and addiction and rehabilitation treatments. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (Note 3). The Company evaluates performance based on profit or loss from operations before income taxes not including non-recurring gains and losses and foreign exchange gains and losses. The Company’s reportable segments are strategic business units that offer different services. They are managed separately because each business requires different technology, specialists and marketing strategies.

 

 

Subject to Report of Independent Registered Public Accounting Firm dated March 19, 2013

 

F- 17

 

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(Stated in U.S. $)

 

16. Segmented information (cont’d)

 

2012 Segment Results   Gastrointestinal Clinical Services   Addiction and Rehabilitation Treatments   Other Segments   Total
Revenues from external customers   $ 1,874,105     $ 3,666,804     $ —       $ 5,540,909  
Interest and fees expense     16,380       197,831       —         214,207  
Depreciation of fixed assets     87,226       136,762       —         223,984  
Segment loss     (154,990 )     (1,356,723 )     27,360       (1,484,353 )
Segment assets     531,662       593,331       —         1,124,993  

 

2011 Segment Results   Gastrointestinal Clinical Services   Addiction and Rehabilitation Treatments   Other Segments   Total
Revenues from external customers   $ 1,160,284     $ 518,520     $ —       $ 1,678,804  
Interest and fees expense     13,674       12,894       —         26,568  
Depreciation of fixed assets     98,888       30,878       —         129,766  
Segment loss     (2,192,838 )     (309,025 )     5,002       (2,496,861 )
Segment assets     561,545       369,369       —         930,916  

 

17. Subsequent events

 

Application to stock exchange

The Company is in the process of applying to the New York Stock Exchange (“NYSE”) which would allow the Company to be listed on the NYSE-Amex exchange. The Company believes being listed on the NYSE will allow it to attract the capital needed to support its operations.

 

Clinic expansion

The Company is seeking to significantly increase its capacity at its in-patient treatment facility from 36 beds to 200 beds over the next twenty four months.

 

Amendments to Articles of Incorporation

The Company resolved that, subject to shareholder approval, the Company’s officers shall file a Certificate of Amendment to the Company’s Articles of Incorporation with the Colorado Secretary of State, increasing the aggregate number of shares it is allowed to issue to five hundred million (500,000,000) common shares with a $0.01 par value, from one hundred million (100,000,000) common shares with a $0.01 par value.

 

The Company also resolved, subject to shareholder approval, the Company’s officers shall file a Certificate of Amendment to the Company’s Articles of Incorporation with the Colorado Secretary of State to authorize the Company’s issuance of up to 10,000,000 preferred shares, convertible to common shares at a 1 to 10 ratio at the board’s discretion.

 

Awarded Ontario Police Force contract

The Company was awarded an exclusive contract to provide treatment services for a major regional Ontario Police Force with regards to post traumatic stress disorder. The Company plans to open a second facility in order to service this contact.

 

Surgical Suite

The Company has decided to move forward with a multi-year lease extension at its North York facility which will allow the company to make the investment to expand into providing surgical procedures such as gastric banding and non-related procedures such as plastic surgery.  

 

Subject to Report of Independent Registered Public Accounting Firm dated March 19, 2013

 

F- 18

 

GREENESTONE HEALTHCARE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(Stated in U.S. $)

 

18. Comparative figures

 

The presentation of certain amounts on the financial statements for the previous year has been changed to conform with the financial statement presentation adopted for 2012. The net loss for the previous year is n ot affected by this reclassification.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subject to Report of Independent Registered Public Accounting Firm dated March 19, 2013

 

F- 19

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

No events requiring disclosure under Item 307 and 308 of Regulation S-K occurred during the fiscal year ended December 31, 2012.

 

Item 9A. Controls and Procedures.

 

(a) Evaluation of Disclosure and Control Procedures

 

The Company’s disclosure controls and procedures are designed to ensure (i) that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms; and (ii) that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Our principal executive officer and principal financial officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2012, and concluded that the disclosure controls and procedures were not effective as a whole, and that the deficiency involving internal controls constituted a material weakness as discussed below.

 

(b) Management’s Assessment of Internal Control over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Exchange Act Rules 13a-15(f). A system of internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

 

Under the supervision and with the participation of management, including the principal executive officer and the principal financial officer, the Company’s management has evaluated the effectiveness of its internal control over financial reporting as of December 31, 2012, based on the criteria established in a report entitled “Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission” and the interpretive guidance issued by the Commission in Release No. 34-55929. Based on this evaluation, the Company’s management, including the Company’s principal executive officer and principal financial officer, has evaluated and concluded that the Company’s internal control over financial reporting was ineffective as of December 31, 2012, and identified the following material weaknesses:

 

  • There is a lack of accounting personnel with the requisite knowledge of Generally Accepted Accounting Principles in the US (“GAAP”) and the financial reporting requirements of the U.S. Securities and Exchange Commission;

  • There are insufficient written policies and procedures to insure the correct application of accounting and financial reporting with respect to the current requirements of GAAP and SEC disclosure requirements; and

  • There is a lack of segregation of duties, in that we only had one person performing all accounting-related duties.

Notwithstanding the existence of these material weaknesses in our internal control over financial reporting, our management believes that the consolidated financial statements included in its reports fairly present in all material respects the Company’s financial condition, results of operations and cash flows for the periods presented.

 

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The Company will continue its assessment on a quarterly basis and as soon as we start operations we plan to hire personnel and resources to address these material weaknesses. We believe these issues can be solved with hiring in-house accounting support and plan to do so as soon as we have funds available for this. There has been no change in its internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. The Company’s registered public accounting firm was not required to issue an attestation on its internal controls over financial reporting pursuant to temporary rules of the Securities and Exchange Commission. The Company will continue to evaluate the effectiveness of internal controls and procedures on an on-going basis.

 

(c) Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information.

 

None.

 

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PART III

 

Item 10. Directors, Executive Officers, and Corporate Governance.

 

The following table sets forth the names and ages of the members of the Company’s Board of Directors (the “Board”) and executive officers, and the positions held by each:

 

Name   Age   Position   Dir./Off. Since
             
Shawn E. Leon   53   Chief Executive Officer, President, Director   November 2010 (1)
             
Dr. Luke Fazio   36   Director   May 2010
             
Michael Howlett   66   Director   April 2011
             
Ken Lorimer   57   Chief Financial Officer   March 2013

 

(1) Mr. Leon was elected as a director and appointed as the president in November 2010 and subsequently as the Company’s Chief Executive Officer in April 2011.

 

Set forth below is a brief description of the background and business experience of each of our current executive officers and directors.

 

Shawn E. Leon, age 53, Chief Executive Officer, President, Director

 

Shawn E. Leon has been an officer and director of the Company since November 2010 and served as the President of the Company’s subsidiaries at all times. In April 2011, Mr. Leon as appointed as the Company’s Chief Executive Officer. Prior to joining the Company, Mr. Leon held the role of President of Greenestone Clinic Inc., Leon Developments Ltd, Port Carling Inn Developments Ltd., 1871 at the Locks Developments Ltd. and JLeon Developments Ltd. since 2008, 2008, 2008, 2008 and 2006 respectively. Mr. Leon graduated with Honors in Business Administration, Wilfrid Laurier University in 1982. Mr. Leon was elected to the Board because of his prior management experience.

 

Dr. Luke Fazio, age 36, Director

 

Dr. Luke Fazio, MD, CM, FRCSC has been a member of the Company’s Board since May 2010. Dr. Fazio completed his medical school training at McGill University in Montreal in 1999. He performed his training in Urology at the University of Western Ontario and became a fellow of the Royal College of Surgeons of Canada in 2004. Dr. Fazio went on to a fellowship in endourology and minimally-invasive surgery at St. Michael’s Hospital in Toronto in association with the University of Toronto. Dr. Fazio has been on staff as an attending urologist at Kingston General Hospital in association with Queen’s University. Dr. Fazio is currently on staff at Humber River Hospital in Toronto, practicing general urology with a special interest in the management of urinary stones and minimally-invasive surgery. Dr. Fazio was elected to the Board because of his business and medical knowledge.

 

Michael Howlett, age 66, Director

 

Michael Howlett has served as a member of the Company’s Board since April 2011. Mr. Howlett brings more than three decades of experience in the private sector. He currently serves as the Chairman and Chief Executive Officer of Carmichael & Holmes Inc., a California based consulting firm specializing in corporate governance and communication and providing these consulting services to clients throughout the United States, Canada, England and Europe. Prior to joining Carmichael, Mr. Howlett served as Chief Executive Officer and Chairman of the Preston Group (“Preston”), an office furniture distributor. In his role at Preston, Mr. Howlett was responsible for strategic planning, operations and mergers and acquisitions. Additionally, Mr. Howlett served as the President and Chief Executive Officer of the Canadian Diabetes Association from September 2003 to April 2008, leading the organization to national and international recognition through its research, education programs and influence in changing public policy. In 2008, Mr. Howlett accepted an invitation from the Canadian Government to direct the two-year launch of the Mental Health Commission (“MHC”). Mr. Howlett developed the financial, strategic and operational framework that would support the MHC’s ten-year mandate to generate awareness and understanding of mental health. Mr. Howlett was added to the Board for his invaluable experience in the Mental Health field.

 

22
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Ken Lorimer, age 57, Chief Financial Officer

 

Ken Lorimer was appointed as the Company’s Chief Financial Officer in March 2013. Prior to Mr. Lorimer’s appointment, he served as the Company’s primary accountant from March 2011 to March 2013, where he oversaw all of the Company’s accounting functions. Prior to joining the Company, from January 1994 to February 2011, Mr. Lorimer operated as sole practitioner providing management consulting services to various companies in industries from manufacturing to real estate development. Prior to starting his management consulting practice, from 1984 to 1993, Mr. Lorimer served as the Chief Financial Officer of Terrazzo Mosaic & Tile Company Limited, which was one of the largest commercial finishing trade companies in North America. Mr. Lorimer received his Bachelor of Business Management from Ryerson University in 1979.

 

Involvement in Certain Legal Proceedings

 

To the best of our knowledge, during the past ten years, none of the following occurred with respect to a present or former director, executive officer, or employee: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

 

Compliance with Section 16(A) of the Exchange Act

 

Section 16(a) of the Exchange Act requires the Company’s directors, executive officers and persons who beneficially own 10% or more of a class of securities registered under Section 12 of the Exchange Act to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Directors, executive officers and greater than 10% stockholders are required by the rules and regulations of the SEC to furnish the Company with copies of all reports filed by them in compliance with Section 16(a). At December 31, 2012, none of the officers, directors or 10% shareholders was in compliance with Section 16(a).

 

Based solely on our review of certain reports filed with the SEC pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended, at December 31, 2012, none of the officers, directors or 10% shareholders were in compliance with Section 16(a).

 

Code of Ethics

 

The Board adopted a Code of Business Conduct and Ethics applicable to all of our directors, officers and employees, including our Chief Executive Officer. A copy of our Code of Ethics is incorporated by reference to an exhibit in our exhibit table. Shareholders may also request a copy of the Code of Ethics from the Company’s headquarters, Attn.: Investor Relations.

 

Board Meetings and Committees

 

The Company holds regular Board meetings each quarter. There are no sub committees of the Board. All Directors act on all matters before the Board.

 

Audit Committee

 

Effective May 6, 2003, the SEC adopted rules that require that before our auditor is engaged by us to render any auditing or permitted non-audit related service, the engagement be:

 

approved by our audit committee; or

 

23
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entered into pursuant to pre-approval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular service, the audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee’s responsibilities to management.

 

We do not currently have an audit committee. The Board pre-approves all services provided by our independent auditors. The Company does not believe that not having an audit committee will have any adverse effect on the Company’s financial statements or current operations. The Company’s management will assess whether an audit committee may be necessary in the future.

 

Item 11. Executive Compensation.

 

Executive Compensation

 

The Company’s Chief Executive Officer has received convertible notes for some of his compensation during the Company’s last two fiscal years. There have been no annuity, pension or retirement benefits paid to our officers or directors during the past two fiscal years. We currently do not have an employment agreement with the Company’s Chief Executive Officer.

 

The table below summarizes all compensation awarded to, earned by, or paid to each named executive officer for our last two completed fiscal years for all services rendered to us.

 

SUMMARY COMPENSATION TABLE
 
Name and principal position Year

Salary

($)

Bonus

($)

Stock Awards

($)

Option Awards

($)

Non-Equity Incentive Plan Compensation

($)

Nonqualified Deferred Compensation Earnings ($)

All Other Compensation

($)

Total

($)

                   
Shawn E. Leon, Chief Executive Officer, President

2012

2011

179,924

118,688

-

-

-

-

-

-

-

-

-

-

0

58,032 (1)

179,924

176,720

                   
Wayne A Doss, former Chief Executive Officer (2)

2011

 

0

 

-

 

-

 

-

 

-

 

-

 

-

 

0

 

 

(1) This represents compensation taken in the form of convertible notes as commissions for raising financing for the Company.

 

(2) Wayne A. Doss resigned from his position as the Company’s Chief Executive Officer and member of the Company’s Board on April 14, 2011. There was no known disagreement with Mr. Doss on any matter relating to the Company’s operations, policies or practices.

 

Outstanding Equity Awards at Fiscal Year End

 

As of December 31, 2012, the Company did not have an equity compensation plan. There were no equity awards issued to executive officers during the fiscal year ended December 31, 2012.

 

Director Compensation

 

The following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named directors by us during the year ended December 31, 2012.

 

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DIRECTOR COMPENSATION TABLE
 
Name 

Fees Earned or

Paid in

Cash

($)

 

 

Stock Awards

($)

 

 

Option Awards

($)

Non-Equity

Incentive

Plan

Compensation

($)

Non-Qualified

Deferred

Compensation

Earnings

($)

 

All

Other

Compensation

($)

 

 

 

Total

($)

               
Shawn E. Leon - - - - - - -
               
Dr. Luke Fazio - - - - - - -
               
Michael Howlett - - - - - - -

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The following table sets forth the beneficial ownership of our capital stock by each executive officer and director, by each person known by us to beneficially own more than five percent (5%) of any class of stock and by the executive officers and directors as a group. Except as otherwise indicated, all shares of common stock are owned directly and the percentage shown is based on 27,234,279 shares of common Stock issued and outstanding as of March 31, 2013.

 

Title of Class Name and Address Current Ownership Current Ownership Percentage (1) Amount of Beneficial Ownership (2) Beneficial Ownership Percentage (3)
           
Current Executive Officers & Directors:        
           
Common Stock

Shawn E. Leon

Chief Executive Officer, President, Director

46 Fairway Heights Drive

Thornhill, Ontario

6,021,900 22.11% 6,821,900
(3)
24.33%
           
Common Stock

Dr. Luke Fazio

Director

200 Fairview Road

Mississauga, Ontario

500,000 1.84% 500,000 1.84%
           
Common Stock

Michael Howlett

Director

2265 Uxbridge Pickering Road

Claremont, Ontario

0 0% 0 0%
           
Common Stock

Ken Lorimer

25-2175 Stavebank Road

Mississauga, Ontario

0 0% 0 0%
           
Total of All Current Officers and Directors 6,521,900 23.95% 7,321,900 26.12%
           
5% Beneficial Owners:        
           
Common Stock Richard Siegel 3,396,367 12.47% 3,396,367 12.47%
           
Common Stock Dr. Jay Parekh 1,525,000 5.60% 2,191,666
(4)
7.86%
           
Total of All Current Officers, Directors and 5% Owners 11,443,267 42.02% 12,909,933 44.98%

 

(1) This percentage is based on 27,234,279 shares of common stock outstanding as of March 31, 2013.

 

(2) As used in this table, “beneficial ownership” means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). In addition, for purposes of this table, a person is deemed, as of any date, to have “beneficial ownership” of any security that such person has the right to acquire within 60 days after such date.

 

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(3) Based on 27,234,279 shares of common stock outstanding as of March 31, 2013, and including those shares beneficially owned by the Company’s officers and directors, respectively, as described below.

 

(4) This total includes 800,000 shares of common stock issuable to Mr. Leon pursuant to outstanding convertible promissory notes in the principal amount of $170,867.

 

(5) This total includes 666,666 shares of common stock issuable to Mr. Leon pursuant to outstanding convertible promissory notes in the principal amount of $100,510.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence.

 

Related Transactions

 

The Bala Facility is in Bala, Ontario at 3571 Highway 169. The property is 43 acres in size and contains approximately 48,000 square feet of buildings. The property is leased from Cranberry and the term of the lease is for five years with renewal options at the end of the first and second years of the five year term. The lease is a net lease and the Company has a non-disturbance agreement from the mortgage lenders on the property for the whole term. Further, the Company has an option to purchase the property at any time during the term of the lease at appraised values with a minimum purchase value of $4.5 million dollars and a maximum purchase value of $8.0 million dollars during the first two years of the term and $10.0 million dollars during the last three years of the term. Shawn Leon, the Company’s Chief Executive Officer is also the managing partner of Cranberry.

 

As of December 31, 2012, a total of $461,861 is owed to executive officers or their affiliates for loans payable, as detailed in the below table:

 

Name   Total Amount Owed ($)
     
Greenestone Clinic, Inc. (1)   $ 40,484  
         
Shawn E. Leon (2)     $170,867 (3)  
         
Dr. Jay Parekh (4)     $250,510 (5)  

 

(1) Shawn E. Leon, the Company’s Chief Executive Officer, is also the Chief Executive Officer of Greenestone Clinic, Inc.

 

(2) Shawn E. Leon is the Company’s Chief Executive Officer.

 

(3) This amount owed is represented in the form of various convertible promissory notes.

 

(4) Dr. Jay Parekh is a 5% holder of the Company’s common stock and an officer of a Company subsidiary.

 

(5) $100,510 of this amount is represented in the form of various convertible promissory notes.

 

Director Independence

 

The common stock of the Company is currently quoted on the OTCBB, a quotation system which currently does not have director independence requirements. On an annual basis, each director and executive officer will be obligated to disclose any transactions with the Company in which a director or executive officer, or any member of his or her immediate family, have a direct or indirect material interest in accordance with Item 407(a) of Regulation S-K. Following completion of these disclosures, the Board will make an annual determination as to the independence of each director using the current standards for “independence” that satisfy the criteria for the NASDAQ Stock Market, Inc.

 

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As of December 31, 2012, the Board determined that the following directors are independent under these standards:

 

Dr. Luke Fazio and Michael Howlett

 

Item 14. Principal Accountant Fees and Services.

 

Audit Fees

 

Audit Fees consist of assurance and related services that are reasonably related to the performance of the audit or review of our financial statements. This category includes fees related to the performance of audits and attest services not required by statute or regulations, and accounts consultations regarding the application of GAAP to proposed transactions. The aggregate Audit Fees billed for the fiscal years ended December 31, 2012 and 2011, were $74,579 and $47,732, respectively.

 

Audit Related Fees

 

The aggregate fees billed for assurance and related services by our principal accountant that are reasonably related to the performance of the audit or review of our financial statements (other than those previously reported above) for the fiscal years ended December 31, 2012 and 2011, were $ nil and $ nil, respectively.

 

Tax Fees

 

Tax Fees consist of the aggregate fees billed for professional services rendered by our principal accounts for tax compliance, tax advice, and tax planning. These services include preparation for federal and state income tax returns. The aggregate Tax Fees billed for the fiscal years ended December 31, 2012 and 2011, were $ nil and $ nil, respectively.

 

All Other Fees

 

We did not incur any other fees billed by auditors for services rendered to our Company, other than the services listed above for the fiscal years ended December 31, 2012 and 2011, respectively.

 

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PART IV

 

Item 15. Exhibits, Financial Statement Schedules.

 

(a) Financial Statements and Schedules

 

See Item 8.

 

(b) Exhibits

 

EXHIBIT INDEX

 

        Incorporated by Reference        
Exhibit No.   Description   Form   SEC File No.   Exhibit   Filing Date   Filed Herewith   Furnished Herewith
                             
2.1   Agreement and Plan of Merger, dated January 3, 1994, by and between NNRC, Inc. and Nova Natural Resources Corporation                   x    
                             
2.2   Articles of Merger (as filed with the Secretary of State of Colorado on February 21, 1995)                   x    
                             
3.1   Articles of Incorporation of NNRC, Inc. (as filed with the Secretary of State of Colorado on April 1, 1993)                   x    
                             
3.2   Articles of Amendment to the Articles of Incorporation of Nova Natural Resources, Inc. (as filed with the Secretary of State of Colorado on May 8, 2012)                   x    
                             
3.3   Articles of Amendment to the Articles of Incorporation of Greenestone Healthcare Corporation (as filed with the Secretary of State of Colorado on March 26, 2013)   8-K   000-15078   3.1   March 29, 2013        
                             
3.4   Amended and Restated Bylaws of Greenestone Healthcare Corporation   8-K   000-15078   3.2   March 29, 2013        
                             
10.1   Lease Agreement, dated April 1, 2011, by and between Cranberry Cove Holdings Ltd. and Greenestone Clinic Muskoka Inc.                   x    
                             
31.1   Certification by the Principal Executive Officer of registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a))                   x    
                             
31.2   Certification by the Principal Financial Officer of registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a) )                   x    
                             
32.1   Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                   x    
                             
32.2   Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                   x    
                             
101.INS   INS XBRL Instance Document                       x
                             
101.SCH   SCH XBRL Schema Document                       x
                             
101.CAL   CAL XBRL Calculation Linkbase Document                       x
                             
101.DEF   DEF XBRL Definition Linkbase Document                       x
                             
101.LAB   LAB XBRL Label Linkbase Document                       x
                             
101.PRE   PRE XBRL Presentation Linkbase Document                       x

 

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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: April 1, 2013   By:  /s/ Shawn E. Leon  
        Name: Shawn E. Leon  
       

Title: Chief Executive Officer

(Principal Executive Officer)

 

 

 

Date: April 1, 2013   By:  /s/ Ken Lorimer  
        Name: Ken Lorimer  
       

Title: Chief Financial Officer

(Principal Financial Officer)

(Principal Accounting 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)   April 1, 2013
Shawn Leon   President, Director    
   

 

 

   
/s/ Dr. Luke Fazio   Director   April 1, 2013
Dr. Luke Fazio        
         
         
/s/ Michael Howlett   Director   April 1, 2013
Michael Howlett        

 

 

/s/ Ken Lorimer   Chief Financial Officer (Principal Financial Officer)   April 1, 2013
Ken Lorimer   (Principal Accounting Officer)    

 

 

 

 

 

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Exhibit 2.1

 
 

 

 

 
 

 

 

 

 
 

 

 

 

 
 

 

 

 

 
 

 

 

 

 

 

 

 

 

Exhibit 2.2

 

 

 
 

 

 

 

 
 

 

 

 
 

 

 

 

Exhibit 3.1

 

 

 
 

 

 

 

 
 

 

 

 

 
 

 

 

 

 
 

 

 

 

 
 

 

 

 

 
 

 

 

 

 
 

 

 

 

 
 

 

 

 

 
 

 

 

 

 
 

 

 

 

 
 

 

 

 

 
 

 

 

 

 
 

 

 

 

 

 

 

 

 

 

Exhibit 3.2

 

 

 

 
 

 

 

 

 
 

 

 

 

 
1

 

Exhibit 10.1

 

LEASE

 

(COMMERCIAL)

 

Made the 1st day of April, 2011.

 

B E T W E E N :

CRANBERRY COVE HOLDINGS LTD.

(the "Landlord")

 

- and -

 

GREENESTONE CLINIC MUSKOKA INC.

(the "Tenant")

 

 

In consideration of the rents, covenants and obligations stipulated herein the Landlord and the Tenant have agreed to enter into a Lease of those certain lands and premises (the "Premises") located near the town of Bala, in the Township of Muskoka Lakes, District Municipality of Muskoka and Province of Ontario as more particularly described in Schedules “ A ” and “B”annexed to this Lease, municipally known as 3571 Muskoka Road 169, Bala, Township of Muskoka Lakes. The Premises include:

 

(a) any and all of the buildings and property located on the property described in Schedule “A”;

 

1. GRANT OF LEASE

 

1.1 The Landlord leases the Premises to the Tenant:

 

(i) at the Rent set forth in Section 2;.

 

(ii) for the Term set forth in Section 3; and.

 

(iii) subject to the conditions and in accordance with the covenants, obligations and agreements herein.

 

2. RENT

 

2.1 Rent means the amounts payable by the Tenant to the Landlord pursuant to this

 

 
2

 

Section and includes Additional Rent.

 

2.2 The Tenant covenants to pay to the Landlord, during the Term of this Lease Rent as follows:

 

(i) from April 1, 2011 to September 30, 2011, the sum of $120,000.00, payable in equal monthly payments of $20,000.00 on the 1 st day of each month starting April 1, 2011 until September 1, 2011.
(ii) from October 1, 2011 until March 31, 2012 the sum of $168,000.00, payable in equal monthly payments of $28,000.00 on the 1 st day of each month starting October 1, 2011 until March 1, 2012.
(iii) from April 1, 2012 until September 30, 2012 the sum of $216,000.00, payable in equal monthly payments of $36,000.00 on the 1 st day of each month starting April 1, 2011 until September 1, 2012.
(iv) from October 1, 2012 until March 31, 2013 the sum of $168,000.00, payable in equal monthly payments of $44,000.00 on the 1 st day of each month starting October 1, 2012 until March 1, 2013.
(v) from April 1, 2013 until March 31, 2016 the sum of $1,980,000.00, payable in equal monthly payments of $55,000.00 on the 1 st day of each month starting April 1, 2013 until March 1, 2016.

 

2.3 The Tenant acknowledges and agrees that H.S.T is in addition to the rents stipulated in 2.2 above.

 

2.4 The Tenant further covenants to pay all other sums required by this Lease to be paid by him and agrees that all amounts payable by the Tenant to the Landlord or to any other party pursuant to the provisions of this Lease shall be deemed to be additional rent ("Additional Rent") whether or not specifically designated as such in this Lease.

 

2.5 The Landlord and Tenant agree that it is their mutual intention that this Lease shall be a net lease for the tenant and that the tenant shall, during the Term of this Lease, be required to make all payments in respect of the Premises and to effect the said intention of the parties the Tenant promises to pay all expenses related to the Premises as Additional Rent, including but not limited to the following;

 

(i)(a) Property taxes, business taxes and licences;

 

b) Business and liability insurance for the Premises and the buildings thereon and the buildings shall be covered for a value of no less than $5,000,000.00 and liability insurance of no less than $5,000,000.00;

 

 
3

 

(c) services supplied to the Premises, including propane, electricity and the cost of obtaining water;

 

(d) goods and services taxes, and any other taxes imposed on the Landlord or the Tenant respecting the Rent payable by the Tenant to the Landlord under this Lease, or in respect of the rental of space under this Lease;

 

(e) all other charges, impositions, costs and expenses of every nature and kind whatsoever that are incurred in the operation of the business on the Premises;

 

(ii) and if any of the foregoing charges are invoiced directly to the Tenant, the Tenant shall pay same as and when they become due and shall produce proof of payment to the Landlord immediately if requested to do so:

 

(a) but the Tenant may contest or appeal any such charges at the Tenant's own expense;

 

(iii) and the Tenant hereby agrees to indemnify and protect the Landlord from any liability accruing to the Landlord in respect of the expenses payable by the Tenant as provided for herein;

 

(iv) and if the Tenant fails to make any of the payments required by this Lease then the Landlord may make such payments and charge to the Tenant as Additional Rent the amounts paid by the Landlord:

 

(a) and if such charges are not paid by the Tenant on demand the Landlord shall be entitled to the same remedies and may take the same steps for recovery of the unpaid charges as in the event of Rent in arrears.

 

2.5 Additional Rent shall be payable in monthly instalments in advance on the first day of each and every month of the Term and on the basis of the Landlord's estimates from time to time of the amount due. The Landlord shall at least once each year provide the Tenant with a statement providing such information as may be required to calculate accurately the amounts payable by the Tenant as Additional Rent. In the event that any such statement indicates that the amounts paid by the Tenant for Additional Rent are either more or less than the amount required pursuant to the statement then an adjustment shall be made between the parties within fifteen (15) days of delivery of such statement.

 

 
4

 

2.6 All payments to be made by the Tenant pursuant to this Lease shall be delivered to the Landlord at the Landlord's address for service set out in Section 15 or to such other place as the Landlord may from time to time direct in writing.

 

2.7 All Rent in arrears and all sums paid by the Landlord for expenses incurred which should have been paid by the Tenant shall bear interest from the date payment was due, or made, or expense incurred at a rate per annum equal to the prime commercial lending rate of the Landlord's bank plus two (2) percent.

 

2.8 The Tenant acknowledges and agrees that the payments of Rent provided for in this Lease shall be made without any deduction for any reason whatsoever unless expressly allowed by the terms of this Lease or agreed to by the Landlord in writing:

 

(i) and no partial payment by the Tenant which is accepted by the Landlord shall be considered as other than a partial payment on account of Rent owing and shall not prejudice the Landlord's right to recover any Rent owing.

 

3. TERM, POSSESSION AND EARLY TERMINATION

 

3.1 The Tenant shall have possession of the Premises for a period of five years commencing on the 1st day of April 2011 and ending on the 31st day of March, 2016 (the "Term").

 

3.2 Subject to the Landlord's rights under this Lease, and as long as the Lease is in good standing the Landlord covenants that the Tenant shall have quiet enjoyment of the Premises during the Term of this Lease without any interruption or disturbance from the Landlord or any other person or persons lawfully claiming through the Landlord.

 

3.3 At the sole discretion of the Tenant, Tenant shall have the right to terminate this lease at the end of the first year of the term by giving written notice to the Landlord no later than January 31, 2012, and at the end of the second year of the term by giving written notice to the Landlord no later than January 31, 2013.

 

4. ASSIGNMENT

 

4.1 The Tenant shall not assign this Lease or sublet or part with possession of the whole or any part of the Premises.

 

4.2 If the party originally entering into this Lease as Tenant is a corporation then:

 

 
5

 

(i) the Tenant shall not be entitled to deal with its authorized or issued capital or that of an affiliated company in any way that results in a change in the effective voting control of the Tenant unless the Landlord first consents in writing to the proposed change;

 

(ii) if any change is made in the control of the Tenant corporation without the written consent of the Landlord then the Landlord shall be entitled to treat the Tenant as being in default and to exercise the remedies stipulated in paragraph 10(2) of this Lease and any other remedies available in law;

 

(iii) the Tenant agrees to make available to the Landlord or his authorized representatives the corporate books and records of the Tenant for inspection at reasonable times.

 

5. USE

 

5.1 During the Term of this Lease the Premises shall not be used for any purpose other than for the purposes of the operation of a in patient mental health and addiction treatment and recovery centre. In connection with the business to be conducted by the Tenant on the Premises, the Tenant may use the advertised name “GreeneStone Clinic” in conjunction with the operating name chosen by the Tenant. The Landlord is required to approve any other name used in the operation of the business. Notwithstanding the foregoing, the Tenant acknowledges and agrees that the aforesaid name and any new name used in the operation of the business is the property of the Landlord and the Tenant will not acquire any rights in such name and upon the expiration or earlier termination of this Lease, the Tenant will abandon or assign to the Landlord any such rights which the Tenant may acquire by operation of law in such name and will promptly execute any documents required by the Landlord to give effect to the foregoing.

 

5.2 The Tenant shall not do or permit to be done at the Premises anything which may:

 

(i) constitute a nuisance;

 

(ii) cause damage to the Premises;

 

(iii) cause injury or annoyance to occupants of neighbouring premises;

 

(iv) make void or voidable any insurance upon the Premises;

 

 
6

 

(v) constitute a breach of any by-law, statute, order or regulation of any municipal, provincial or other competent authority relating to the Premises.

 

6. REPAIR AND MAINTENANCE

 

6.1 The Tenant covenants that during the Term of this Lease the Tenant shall keep in good condition the Premises including, without limitation, all alterations and additions made thereto, all systems and equipment serving same, all structural elements thereof, the roof and roof membrane, and shall, with or without notice, promptly make all needed repairs and all necessary replacements as would a prudent owner but the Tenant shall not be liable for repairs attributable to reasonable wear and tear, or to damage caused by fire, lightning or storm.

 

6.2 The Tenant shall permit the Landlord or a person authorized by the Landlord to enter the Premises to examine the condition thereof and view the state of repair at reasonable times:

 

(i) and if upon such examination repairs or replacements are found to be necessary, written notice of the repairs or replacements required shall be given to the Tenant by or on behalf of the Landlord and the Tenant shall make the necessary repairs or replacements within the time specified in the notice;

 

(ii) and if the Tenant refuses or neglects to keep the Premises in good repair the Landlord may, but shall not be obliged to, make any necessary repairs or replacements, and shall be permitted to enter the Premises, by himself or his servants or agents, for the purpose of effecting the repairs or replacements without being liable to the Tenant for any loss, damage or inconvenience to the Tenant in connection with the Landlord's entry and repairs:

 

(a) and if the Landlord makes repairs or replacements the Tenant shall pay the cost of them immediately as Additional Rent.

 

6.3 Upon the expiry of the Term or other determination of this Lease the Tenant agrees peaceably to surrender the Premises, including any alterations or additions made thereto, to the Landlord in a state of good repair, reasonable wear and tear and damage by fire, lighting and storm only excepted.

 

 
7

 

6.4 The Tenant shall immediately give written notice to the Landlord of any substantial damage that occurs to the Premises from any cause.

 

6.5 The Tenant covenants and agrees to utilize the Premises and operate its business in a manner so that no part of the Premises or surrounding lands are used to generate, manufacture, refine, treat, transport, store, handle, dispose of, transfer, produce or process any Hazardous Substances, except in strict compliance with all applicable federal, provincial and municipal statutes, by-laws, regulations, orders, guidelines, policies, directives and ordinances including, without limitation, environmental, land use and occupational and health and safety statutes, by-laws, regulations, orders, guidelines, policies, directives and ordinances. Further the Tenant hereby covenants and agrees to indemnify and save harmless the Landlord and those for whom the Landlord is in law responsible from any and all losses, costs, claims, damages, liabilities, expenses or injuries caused or contributed to by any Hazardous Substances which are at any time located, stored or incorporated in any part of the Premises. The Tenant hereby agrees that the Landlord or its authorized representatives shall have the right at the Tenant's expense, payable as Additional Rent within fifteen (15) days of receipt of an invoice therefore, to conduct such environmental site reviews and investigations as it may deem necessary for the purposes of ensuring compliance with this subclause (5). The Tenant's obligations pursuant to this subclause (5) shall survive the expiration or earlier termination of the Term. For the purposes of this subclause (5) the term "Hazardous Substances" means any contaminant, pollutant, dangerous substance, potentially dangerous substance, noxious substance, toxic substance, hazardous waste, flammable, explosive or radioactive material, urea formaldehyde foam insulation, asbestos, PCB's or any other substances or materials that are declared or defined to be hazardous, toxic, contaminants or pollutants in or pursuant to any applicable federal, provincial or municipal statute, by-law, regulation, order, guideline, policy, directive or ordinance.

 

7. ALTERATIONS AND ADDITIONS

 

7.1 If the Tenant, during the Term of this Lease, desires to make any alterations or additions to the Premises, including but not limited to: erecting partitions, attaching equipment, and installing necessary furnishings or additional equipment for the Tenant's business, the Tenant may do so at his own expense, at any time and from time to time, if the following conditions are met:

 

(i) before undertaking any alteration or addition the Tenant shall submit to the Landlord a plan showing the proposed alterations or additions and the Tenant shall not proceed to make any alteration or addition unless the Landlord has

 

 
8

 

approved the plan, and the Landlord shall not unreasonably or arbitrarily withhold his approval:

 

(ii) any and all alterations or additions to the Premises made by the Tenant must comply with all applicable building code standards and by-laws of the municipality in which the Premises are located and without limiting the generality of the foregoing, the Tenant shall be responsible prior to commencing any such alterations or additions to obtain at its sole cost and expense all requisite building permits, licenses and municipal approvals.

 

7.2 The Tenant shall be responsible for and pay the cost of any alterations, additions, installations or improvements that any governing authority, municipal, provincial or otherwise, may require to be made in, on or to the Premises.

 

 

7.3 No sign, advertisement or notice shall be inscribed, painted or affixed by the Tenant, or any other person on the Tenant's behalf, on any part of the inside or outside of the Premises unless the sign, advertisement or notice has been approved in every respect by the Landlord and the Tenant obtains at its sole cost and expense all requisite municipal approvals, licenses and permits.

 

7.4 All alterations and additions to the Premises made by or on behalf of the Tenant, other than the Tenant's trade fixtures, furniture and equipment shall immediately become the property of the Landlord without compensation to the Tenant.

 

7.5 The Tenant agrees, at his own expense and by whatever means may be necessary, immediately to obtain the release or discharge of any encumbrance that may be registered against the Premises in connection with any additions or alterations to the Premises made by the Tenant or in connection with any other activity of the Tenant.

 

7.6 If the Tenant has complied with its obligations according to the provisions of this Lease, the Tenant may remove its trade fixtures, furniture and equipment at the end of the Term or other termination of this Lease and the Tenant covenants that he will make good and repair or replace as necessary any damage caused to the Premises by the removal of the Tenant's trade fixtures, furniture and equipment.

 

7.7 Other than as provided in paragraph 7(6) above, the Tenant shall not, during the Term of this Lease or anytime thereafter remove from the Premises any trade fixtures, furniture, equipment or other goods and chattels of the Tenant except in the following circumstances:

 

 
9

 

(i) the removal is in the ordinary course of business;

 

(ii) the trade fixture, furniture or equipment has become unnecessary for the Tenant's business or is being replaced by a new or similar trade fixture, furniture or equipment; or

 

(iii) the Landlord has consented in writing to the removal;

 

but in any case the Tenant shall make good any damage caused to the Premises by the installation or removal of any trade fixtures, furniture, equipment, partitions, furnishings and any other objects whatsoever brought onto the Premises by the Tenant.

 

7.8 The Tenant shall, at his own expense, if requested by the Landlord, remove at the end of the Term or other termination of this Lease, all its trade fixtures, furniture and equipment and all additions or improvements made by or on behalf of the Tenant to the Premises during the Term and shall repair all damage caused by the installation or removal or both.

 

7.9 The Tenant shall not bring onto the Premises or any part of the Premises any machinery, equipment or any other thing that might in the opinion of the Landlord, by reason of its weight, size or use, damage the Premises or overload the floors of the Premises and if the Premises are damaged or overloaded the Tenant shall restore the Premises immediately or pay to the Landlord the cost of restoring the Premises.

 

8. INSURANCE

 

8.1 During the Term of this Lease the Tenant shall maintain with respect to the Premises, insurance coverage insuring against:

 

(i) loss or damage by fire, lightning, storm and other perils that may cause damage to the Premises or the property of the Landlord located in the Premises as are commonly provided for as extended perils coverage or as may be reasonably required and obtained by the Landlord:

 

(a) and the insurance policy shall provide coverage on a replacement cost basis;

 

(ii) liability for bodily injury or death or property damage sustained by third

 

 
10

 

parties up to such limits as the Landlord in its sole discretion deems advisable;

 

(iii) rental income protection insurance with respect to fire and other perils;

 

(a) but such insurance and any payment of the proceeds thereof to the Landlord shall not relieve the Tenant of its obligations to continue to pay Rent during any period of rebuilding, replacement, repairing or restoration of the Premises except as provided in Section 9.

 

8.2 The Tenant covenants to keep the Landlord indemnified against all claims and demands whatsoever by any person, whether in respect of damage to person or property, arising out of or occasioned by the maintenance, use or occupancy of the Premises. The Tenant further covenants to indemnify the Landlord with respect to any encumbrance on or damage to the Premises occasioned by or arising from the act, default, or negligence of the Tenant, its officers, agents, servants, employees, contractors, customers, invitees or licensees:

 

(i) and the Tenant agrees that the foregoing indemnity shall survive the termination of this Lease notwithstanding any provisions of this Lease to the contrary.

 

8.3 The Tenant shall throughout the Term, at its own cost and expense, take out and keep in full force and effect and in the names of the Tenant, the Landlord and any mortgagee or chargee of the Landlord's interest in the Premises as their respective interests may appear, the following insurance:

 

(i) Insurance upon property of every description and kind owned by the Tenant or for which the Tenant is legally liable (including all leased chattels) and which is located within the Premises in an amount of not less than ninety percent (90%) of the full replacement value thereof and with coverage against at least the perils of fire and standard extended coverage including sprinkler leakages (where applicable);

 

(ii) Broad form boiler and machinery insurance on a blanket repair and replacement basis with limits for each accident in the amount of not less than the replacement cost of all leasehold improvements and of all boilers, pressure vessels, air conditioning equipment and miscellaneous electrical apparatus owned or operated by the Tenant or by others (other than the Landlord) on behalf of the Tenant in the Premises;

 

 
11

 

(iii) Business interruption insurance in such amounts as will reimburse the Tenant for direct or indirect loss of earnings attributable to all perils insured against by the Tenant hereunder;

 

(iv) Public liability and property damage insurance including personal injury liability, tenant legal liability, contractual liability and owners' protective insurance coverage with respect to the Premises. Such policies shall be written on a comprehensive basis within inclusive limits of not less than Five Million Dollars ($5,000,000.) for bodily injury or property damage or such higher limits as the Landlord or any mortgagee or chargee of the Landlord's interest in the Premises may reasonably require from time to time;

 

(v) Any other form of insurance as the Tenant or the Landlord or any mortgagee or chargee of the Landlord's interest in the Premises may reasonably require from time to time in form, in amounts and for insurance risks against which a prudent tenant would insure.

 

8.4 All policies required to be written on behalf of the Tenant pursuant to subclause (3) above shall contain any mortgagee or chargee of the Landlord's interest in the Premises standard mortgage clause, if required by any such mortgagee or chargee, and shall contain a waiver of any subrogation rights which the Tenant's insurers may have against the Landlord and against those for whom the Landlord is in law responsible, whether any such damage is caused by the act, omission or negligence of the Landlord or those for whom the Landlord is in law responsible.

 

8.5 All policies required to be written on behalf of the Tenant pursuant to subclause (3) above shall be taken out with insurers acceptable to the Landlord and shall be in a form satisfactory from time to time to the Landlord.  The Tenant agrees that certificates of insurance on the Landlord's standard form or if required by the Landlord or any mortgagee or chargee of the Landlord's interest in the Premises, certified copies of each such insurance policy will be delivered to the Landlord as soon as practicable after the placing of the required insurance.  All policies shall contain an undertaking by the insurers to notify the Landlord and any mortgagee or chargee of the Landlord's interest in the Premises in writing not less than thirty (30) days prior to any material change, cancellation or termination thereof.

 

8.6 The Tenant agrees that if the Tenant fails to take out or keep in force any such insurance referred to in subclause (3) above, or should any such insurance not be approved by either the Landlord or any mortgagee or chargee of the Landlord's

 

 
12

 

interest in the Premises and should the Tenant not rectify the situation immediately after written notice by the Landlord to the Tenant, the Landlord has the right without assuming any obligation in connection therewith to affect such insurance at the sole cost of the Tenant and all outlays by the Landlord shall be immediately paid by the Tenant to the Landlord as Additional Rent without prejudice to any other rights and remedies of the Landlord under this Lease.

 

8.7 The Landlord shall not be liable for any death or injury arising from or out of any occurrence in, upon, at or relating to the Premises, or damage to property of the Tenant or of others located on the Premises, nor shall the Landlord be responsible for any loss of or damage to any property of the Tenant or others from any cause whatsoever, whether or not any such death, injury, loss or damage results from the negligence of the Landlord, its agents, servants or employees or others for whom the Landlord is in law responsible. Without limiting the generality of the foregoing, the Landlord shall not be liable for any injury or damage to persons or property resulting from fire, explosion, falling plaster, falling ceiling tiles, falling ceiling fixtures and diffuser coverings, steam, gas, electricity, water, flood, snow or leaks from any part of the Premises or from the pipes, sprinklers, appliances, plumbing works, roof, windows or subsurface of any floor or ceiling of the Premises or from the adjoining streets or any other place or by dampness or by any other cause whatsoever. The Landlord shall not be liable for any such damage caused by other persons in the Premises or by occupants of adjacent property thereto or the public, or caused by construction or by any private, public or quasi-public work. All property of the Tenant kept or stored on the Premises shall be so kept or stored at the risk of the Tenant only and the Tenant shall indemnify the Landlord and save it harmless from any claims arising out of any damages to the same including, without limitation, any subrogation claims by the Tenant's insurers.

 

9 DAMAGE TO THE PREMISES

 

9.1 If the Premises is damaged or destroyed, in whole or in part, by fire or other peril, then the following provisions shall apply:

 

(i) if the damage or destruction renders the Premises unfit for occupancy and impossible to repair or rebuild using reasonable diligence within 30 clear days from the happening of such damage or destruction, then the Term hereby granted shall at the option of the Landlord to be exercised within thirty (30) days of any such occurrence, cease from the date which is three (3) days following the date of the exercise by the Landlord of such option and the Tenant shall immediately surrender the remainder of the Term and give

 

 
13

 

possession of the Premises to the Landlord, and the Rent from the time of the surrender shall abate:

 

(ii) if the Premises can with reasonable diligence be repaired and rendered fit for occupancy within 30 days from the happening of the damage or destruction, or in the event the Landlord elects not to or fails to exercise its right to terminate this Lease as provided for in Section 9.(1)(a) above, but the damage renders the Premises wholly unfit for occupancy, then the Rent hereby reserved shall not accrue after the day that such damage occurred, or while the process of repair is going on, and the Landlord shall repair the Premises (other than the leasehold improvements, trade fixtures and equipment located or previously located therein, the responsibility for which shall be that of the Tenant) with all reasonable speed, and the Tenant's obligation to pay Rent shall resume immediately after the Landlord's repairs to the Premises have been completed;

 

(iii) if the Premises can be repaired within 30 days as aforesaid, but the damage is such that the Premises are capable of being partially used, then until such damage to the Premises has been repaired by the Landlord (other than the leasehold improvements, trade fixtures and equipment located or previously located therein, the responsibility for which shall be that of the Tenant) the Tenant shall continue in possession and the Rent shall abate proportionately.

 

9.2 Any question as to the degree of damage or destruction or the period of time required to repair or rebuild shall be determined by an architect retained by the Landlord.

 

9.3 Apart from the provisions of Section 9(1) there shall be no abatement from or reduction of the Rent payable by the Tenant, nor shall the Tenant be entitled to claim against the Landlord for any damages, general or special, caused by fire, water, sprinkler systems, partial or temporary failure or stoppage of services or utilities which the Landlord is obliged to provide according to this Lease, from any cause whatsoever.

 

10. ACTS OF DEFAULT AND LANDLORD'S REMEDIES

 

10.1 An Act of Default has occurred when:

 

(i) the Tenant has failed to pay any Rent when due and such failure continues for a period of five (5) consecutive days following written notice from the

 

 
14

 

Landlord to the Tenant thereof;

 

(ii) The Tenant has breached its covenants or failed to perform any of his obligations under this Lease:

 

(a) the Landlord has given notice specifying the nature of the default and the steps required to correct it; and

 

(b) the Tenant has failed to correct the default as required by the notice within thirty (30) days of receipt of such notice;

 

(iii) the Tenant has:

 

(a) become bankrupt or insolvent or made an assignment for the benefit of creditors;

 

(b) had its property seized or attached in satisfaction of a judgement;

 

(c) had a receiver appointed;

 

(d) committed any act or neglected to do anything with the result that a construction lien or other encumbrance is registered against the Premises and such construction lien or other encumbrance is not vacated or discharged within five (5) days following written notice from the Landlord to the Tenant thereof;

 

(e) without the consent of the Landlord, made or entered into an agreement to make a sale of its assets to which the Bulk Sale Act applies;

 

(f) taken action if the Tenant is a corporation, with a view to winding up, dissolution or liquidation;

 

(iv) any insurance policy is cancelled or not renewed by reason of the use or occupation of the Premises, or by reason of non-payment of premiums;

 

 

(v) the Premises are used by any other person(s), or for any other purpose than as provided for in this Lease without the written consent of the Landlord.

 

10.2 When an Act of Default on the part of the Tenant has occurred:

 

 
15

 

 

(i) the current month's Rent together with the next three months' Rent shall become due and payable immediately; and

 

(ii) the Landlord shall have the right to terminate this Lease and to re-enter the Premises and deal with them as he may choose.

 

10.3 If, because an Act of Default has occurred, the Landlord exercises his right to terminate this Lease and re-enter the Premises prior to the end of the Term, the Tenant shall nevertheless be liable for payment of Rent and all other amounts payable by the Tenant in accordance with the provisions of this Lease until the Landlord has re-let the Premises or otherwise dealt with the Premises in such manner that the cessation of payments by the Tenant will not result in loss to the Landlord:

 

(i) and the Tenant agrees to be liable to the Landlord, until the end of the Term of this Lease for payment of any difference between the amount of Rent hereby agreed to be paid for the Term hereby granted and the rent any new tenant pays to the Landlord.

 

10.4 The Tenant covenants that notwithstanding any present or future Act of the Legislature of the Province of Ontario, the personal property of the Tenant during the Term of this Lease shall not be exempt from levy by distress for Rent in arrears:

 

(i) and the Tenant acknowledges that it is upon the express understanding that there should be no such exemption that this Lease is entered into, and by executing this Lease:

 

(a) the Tenant waives the benefit of any such legislative provisions which might otherwise be available to the Tenant in the absence of this agreement; and

 

(b) the Tenant agrees that the Landlord may plead this covenant as an estoppel against the Tenant if an action is brought to test the Landlord's right to levy distress against the Tenant's property.

 

10.5 If, when an Act of Default has occurred, the Landlord chooses not to terminate the Lease and re-enter the Premises, the Landlord shall have the right to take any and all necessary steps to rectify any or all Acts of Default of the Tenant and to charge the costs of such rectification to the Tenant and to recover the costs as Rent.

 

 
16

 

10.6 If, when an Act of Default has occurred, the Landlord chooses to waive his right to exercise the remedies available to him under this Lease or at law the waiver shall not constitute condonation of the Act of Default, nor shall the waiver be plead as an estoppel against the Landlord to prevent his exercising his remedies with respect to a subsequent Act of Default.

 

11. OVERHOLDING

 

11.1 The Tenant agrees to permit the Landlord to show the Premises to prospective new tenants or purchasers and to permit anyone having written authority of the Landlord to view the Premises at reasonable hours.

 

11.2 If the Tenant remains in possession of the Premises after termination of this Lease and if the Landlord then accepts the Rent for the Premises from the Tenant, it is agreed that such overholding by the Tenant and acceptance of Rent by the Landlord shall create a monthly tenancy only but the tenancy shall remain subject to all the terms and conditions of this Lease except those regarding the Term.

 

12 ACKNOWLEDGEMENT BY TENANT

 

12.1 The Tenant agrees that he will at any time or times during the Term, upon being given at least forty-eight (48) hours prior written notice, execute and deliver to the Landlord a statement in writing certifying:

 

(i) that this Lease is unmodified and is in full force and effect (or if modified stating the modifications and confirming that the Lease is in full force and effect as modified);

 

12.2 the amount of Rent being paid;

 

12.3 the dates to which Rent has been paid;

 

12.4 other charges payable under this Lease which have been paid;

 

12.5 particulars of any prepayment of Rent or security deposits; and

 

12.6 particulars of any subtenancies.

 

13. SUBORDINATION AND POSTPONEMENT

 

 
17

 

13.1 This Lease and all the rights of the Tenant under this Lease are subject and subordinate to any and all charges against the Premises, whether the charge is in the nature of a mortgage, trust deed, lien or any other form of charge arising from the financing or re-financing, including extensions or renewals, of the Landlord's interest in the Premises.

 

13.2 Upon the request of the Landlord the Tenant will execute any form required to subordinate this Lease and the Tenant's rights to any such charge, and will, if required, attorn to the holder of the charge.

 

13.3 No subordination by the Tenant shall have the effect of permitting the holder of any charge to disturb the occupation and possession of the Premises by the Tenant as long as the Tenant performs his obligations under this Lease and the Landlord shall provide to the Tenant a non-disturbance agreement satisfactory to the Tenant from any existing or future lien holders, mortgagors or any other registrations on title to the Premises.

 

13.4 The Landlord acknowledges and agrees that this lease shall be registered on title.

 

14. OPTION TO PURCHASE

 

14.1 The Landlord gives the Tenant the right to purchase the Premises from the Landlord at any time during the term of the lease (“Tenant Option”). During the first two years of the term the Tenant Option shall have a maximum purchase price equal to $8,000,000.00. During the last three years of the Term the maximum purchase price shall be $10,000,000.00. The minimum purchase price shall be $4,500,000.00 at all times during the term. The tenant must give notice to the Landlord that the Tenant would like to exercise its right to purchase the property. The Landlord and Tenant will each order an appraisal to be done on the property by a bone fide commercial property appraiser acceptable to each other. The purchase price shall be determined by averaging the value of the two appraisals and subject always to the minimum and maximum prices indicated in the is paragraph. The appraisal shall be completed no longer than 60 days from the notice date and the agreement of purchase and sale shall be completed no longer than one hundred and twenty days from the notice date. If the process is not completed as per this paragraph within the Term of this Lease, then the Landlord shall not be obliged to sell the property to the Tenant.

 

15 NOTICE

 

 
18

 

15.1 Any notice required or permitted to be given by one party to the other pursuant to the terms of this Lease may be given:

 

To the Landlord at:

 

Cranberry Cove Holdings Ltd.

25- 2175 Stavebank Road.

Mississauga, Ontario

L5C 1T3

 

To the Tenant at:

 

Greenestone Clinic Muskoka Inc.

5734 Yonge Street Suite 300

North York, Ontario

M2M 4E7

 

15.2 The above addresses may be changed at any time by giving ten (10) days written notice.

 

15.3 Any notice given by one party to the other in accordance with the provisions of this Lease shall be deemed conclusively to have been received on the date delivered if the notice is served personally or seventy-two (72) hours after mailing if the notice is mailed.

 

16. REGISTRATION

 

16.1 The Tenant shall notify the Landlord in writing prior to registering a notice of or a copy of this Lease on title to the Premises.

 

17. INTERPRETATION

 

17.1 The words importing the singular number only shall include the plural, and vice versa, and words importing the masculine gender shall include the feminine gender, and words importing persons shall include firms and corporations and vice versa.

 

 
19

 

17.2 The word "Landlord" and the word "Tenant" wherever used herein shall be construed to include the heirs, executors, administrators, successors and assigns of the Landlord and Tenant, respectively.

 

17.3 When there are two or more Tenants bound by the same covenants herein contained, their obligations shall be joint and several.

 

18. LANDLORD'S WORK

 

18.1 The Tenant acknowledges and agrees that it is taking the Premises in its "as is" condition. Subject to compliance by the Tenant with all applicable provisions of this Lease, including, without limitation, the provisions of Sections 7.(1), 7.(2), 7.(3), 7.(4), 7.(5) and 7.(9), the Tenant shall be entitled to make such alterations and additions to the Premises as it may require for its business operations therein.

 

19. FORCE MAJEURE

 

19.1 Notwithstanding anything to the contrary contained in this Lease, if either party hereto is bona fide delayed or hindered in or prevented from the performance of any term, covenant or act required hereunder by reason of strikes, labour troubles; inability to procure materials or services; power failure; restrictive governmental laws or regulations; riots; insurrection; sabotage; rebellion; war; act of God; or other reason whether of a like nature or not which is not the fault of the party delayed in performing work or doing acts required under the terms of this Lease, then performance of such term, covenant or act is excused for the period of the delay and the party so delayed shall be entitled to perform such term, covenant or act within the appropriate time period after the expiration of the period of such delay. However, the provisions of this Section do not operate to excuse the Tenant from the prompt payment of Rent, Additional Rent, or any other payments required by this Lease.

 

20. WAIVER

 

20.1 Failure by the Landlord to require performance of any term, covenant or condition herein contained shall not be deemed to be a waiver of such term, covenant or condition or of any subsequent breach of the same or of any other term, covenant or condition herein contained.  The subsequent acceptance of Rent hereunder by the Landlord shall not be deemed to be a waiver of any preceding breach by the Tenant of any term, covenant or condition of this Lease, other than the failure of the Tenant to pay the particular Rent so accepted, regardless of the Landlord's knowledge of

 

 
20

 

such preceding breach at the time of acceptance of such Rent.  No covenant, term or condition of this Lease shall be deemed to have been waived by the Landlord, unless such waiver be in writing by the Landlord.

 

21. ACCORD AND SATISFACTION

 

21.1 No payment by the Tenant or receipt by the Landlord of a lesser amount than the monthly Rent herein stipulated shall be deemed to be other than on account of the earliest stipulated Rent, nor shall any endorsement or statement or any cheque or any letter accompanying any cheque or payment as Rent be deemed an accord and satisfaction, and the Landlord may accept such cheque or payment without prejudice to the Landlord's right to recover the balance of such Rent or pursue any other remedy in this Lease provided. 

 

22. ENTIRE AGREEMENT

 

22.1 This Lease and the schedules and rider, if any, attached hereto and forming a part hereof, set forth all the covenants, promises, agreements, conditions and understandings between the Landlord and the Tenant concerning the Premises and there are no covenants, promises, agreements, conditions or representations, either oral or written, between them other than are herein and in the said schedules and rider, if any, set forth.  Except as herein otherwise provided, no subsequent alteration, amendment, change or addition to this Lease shall be binding upon the Landlord or the Tenant unless reduced to writing and signed by them.

 

23. GOVERNING LAW

 

23.1 The Lease is to be governed by and construed according to the laws of the Province of Ontario. 

 

24. PARTIAL INVALIDITY

 

24.1 If any term, covenant or condition of this Lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease and/or the application of such term, covenant or condition to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant or condition of this Lease shall be separately valid and enforceable to the fullest extent permitted by law.

 

 
21

 

25. TIME TO BE OF THE ESSENCE

 

25.1 Time shall be of the essence of this Indenture of Lease.

 

26. FURNITURE, EQUIPMENT

 

26.1 In addition to the lease of the Premises, the Tenant shall be entitled throughout the Term of this Lease to the use of all leaseholds and equipment owned by the Landlord and located in the Premises and as further described and listed in Schedule B as of the commencement date of the Term (the “Equipment”). The Tenant shall throughout the Term of the Lease maintain the Equipment in good condition and repair, reasonable wear and tear only excepted. In no event shall the Tenant at any time during the Term of this Lease remove all or any portion of the Equipment from the Premises without the prior written consent of the Landlord. Upon the expiration or earlier termination of the Term of this Lease the Tenant shall surrender the Equipment to the Landlord in the state of repair required of it pursuant to the provisions hereof. Any items missing at expiration or earlier termination of the Term of this Lease shall be replaced by the Tenant at the Tenants expense. If the Tenant fails to replace any broken or missing items, the Landlord may replace any missing or broken furniture and equipment and may apply the amounts as additional rent, and collect payment as this agreement allows for additional rent.

 

26.2 Items of furniture and certain equipment not listed in Schedule B are not owned by the Landlord and their use and or availability is subject to Tenant satisfying itself through negotiations with Landlords previous Tenant as to its availability and or use.

 

28. RULES AND REGULATIONS

 

28.1 The Tenant will comply with all rules and regulations as amended, modified or supplemented from time to time by the Landlord with respect to the use and manner of use of the Premises.

 

29. ENUREMENT

 

29.1 All rights and liabilities herein given to, or imposed upon, the Landlord and Tenant shall extend to and bind the heirs, executors, administrators, successors and assigns of the Landlord and Tenant.

 

 
22

 

IN WITNESS of the foregoing covenants the Landlord and Tenant have executed this Lease.

 

GREENESTONE CLINC MUSKOKA INC.

 

Per: /s/ Shawn Leon

Name: Shawn Leon

Title: President

I/We have authority to bind the Corporation.

 

CRANBERRY COVE HOLDINGS LTD.

 

Per: /s/ Shawn Leon

Name: Shawn Leon

Title: President

 

I/We have authority to bind the Corporation.

 

 

 
 

 

SCHEDULE “A”

 

LEGAL DESCRIPTION

 

 

Part Lot 15, Concession F, Former Township of Medora, now in the township of Muskoka Lakes, District Municipality of Muskoka, described as Part 1, Reference Plan 35R-5958 and Parts 2 and 3, Reference Plan 35R-11290 (43.094 acres)

 

 

 

 

 

 

 

 

 

 

 
 

 

SCHEDULE “B”

 

LEASHOLD AND EQUIPMENT LIST

 

11 Hot Water heaters specifically excluded. (They are rental equipment)

 

All Pool Heating and filtering and sanitizing equipment for the indoor and outdoor pools.

 

All hot tubs and related equipment.

 

All furnaces, heating and cooling equipment, steam generating equipment and instant hot water heaters where installed.

 

All kitchen exhaust equipment.

 

Walk in Cooler in main kitchen.

 

Walk in Cooler in Laundry Building excluded.

 

All septic pumps and panels and control devices for both the septic and water systems.

 

All telephone equipment and handsets.

 

All television satellite and antenna receiver equipment and distribution equipment.

 

 

 

 

 

 

 

.

 

Exhibit 31.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

 

I, Shawn E. Leon, certify that:

 

1. I have reviewed this Form 10-K of Greenestone Healthcare Corporation;
     
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in this report;
     
4. Along with the Principal Financial Officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have:
     
  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d) Disclosed in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
     
5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
     
  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b) Any fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Date: April 1, 2013

By: /s/ Shawn E. Leon  
    Shawn E. Leon  
   

Principal Executive Officer

Greenestone Healthcare Corporation

 
             

 

 

Exhibit 31.2

 

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

 

I, Ken Lorimer, certify that:

 

1. I have reviewed this Form 10-K of Greenestone Healthcare Corporation;
     
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in this report;
     
4. Along with the Principal Executive Officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have:
     
  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d) Disclosed in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
     
5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
     
  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b) Any fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Date: April 1, 2013

By: /s/ Ken Lorimer  
    Ken Lorimer  
   

Principal Financial Officer

Greenestone Healthcare Corporation

 
             

 

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

 

In connection with this Annual Report of Greenestone Healthcare Corporation (the “Company”), on Form 10-K for the year ended December 31, 2012, as filed with the U.S. Securities and Exchange Commission on the date hereof, I, Shawn E. Leon, Principal Executive Officer of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:

 

  (1) Such Annual Report on Form 10-K for the year ended December 31, 2012, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  (2) The information contained in such Annual Report on Form 10-K for the year ended December 31, 2012, fairly presents, in all material respects, the financial condition and results of operations of the Company.

  

       
Date: April 1, 2013 By: /s/ Shawn E. Leon  
    Shawn E. Leon  
   

Principal Executive Officer

Greenestone Healthcare Corporation

 
       

 

Exhibit 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

 

In connection with this Annual Report of Greenestone Healthcare Corporation (the “Company”), on Form 10-K for the year ended December 31, 2012, as filed with the U.S. Securities and Exchange Commission on the date hereof, I, Ken Lorimer, Principal Financial Officer of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:

 

  (1) Such Annual Report on Form 10-K for the year ended December 31, 2012, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  (2) The information contained in such Annual Report on Form 10-K for the year ended December 31, 2012, fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

       
Date: April 1, 2013 By: /s/ Ken Lorimer  
    Ken Lorimer  
   

Principal Financial Officer

Revolutions Medical Corporation