UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterquarterly period ended: JuneSeptember 30, 2014

OR

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

For the Transition Period from ___________ to____________

Commission File Number:000-15078

GREENESTONE HEALTHCARE CORP.

(Exact name of registrant as specified in its charter)

5734 Yonge Street, Suite 300

North York, Ontario, Canada M2M 4E7

(Address of principal executive offices and zip code)

(416) 222-5501

(Registrant’s telephone number, including area code)

Prepared by:

Sunny J. Barkats, Esq.

18 East 41^st Street, 14^thFloor

New York, NY 10017

Tel (646) 502-7001

Fax (646) 607-5544

www.JSBarkats.com

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ] 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.

Yes [X] No [ ]

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

As of August 12,November 14, 2014, there were 47,343,05548,093,055 shares outstanding of the registrant’s common stock.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

GREENESTONE HEALTHCARE CORPORATION

FOR THE SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2014

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

TABLE OF CONTENTS

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

Greenestone Healthcare Corporation

Consolidated Balance Sheets (Unaudited)

As at June 30, 2014

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

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

Greenstone Healthcare Corporation

Consolidated Interim Statements of Cash Flows (Unaudited)

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

Notes to Consolidated Interim Financial Statements

1. Nature of business

GreeneStone Healthcare Corporation (the “Company”) was incorporated under the laws of the state of Colorado, USA, on April 1, 1993. Effective May 2012, the Company changed its corporate name to GreeneStone Healthcare Corporation from Nova Natural Resources Corporation. As at JuneSeptember 30, 2014, 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 provinceProvince 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.

TheaccompanyingunauditedConsolidatedinterimfinancialstatementshavebeenpreparedinaccordancewith accountingprinciplesgenerallyacceptedintheUnitedStatesofAmericaforinterimconsolidatedfinancialinformation andRule8-03ofRegulationS-X.Accordingly,theseconsolidatedinterimfinancialstatementsdonotincludeallofthe informationanddisclosuresrequiredbyaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmericafor completefinancialstatements.

Alladjustments(consistingofnormalrecurringadjustments)considerednecessaryforafairpresentationhavebeenincludedintheseunauditedconsolidatedinterimfinancialstatements.Operatingresultsforthesixmonthperiod presentedarenotnecessarilyindicativeoftheresultsthatmaybeexpectedforanyotherinterimperiodorforthefull year.ThebalancesheetatDecember31,2013hasbeenderivedfromauditedfinancialstatements.Theunaudited consolidatedinterimfinancialstatementsshouldbereadinconjunctionwiththeconsolidatedfinancialstatementsand footnotestheretofortheyearendedDecember31,2013.

The accompanying unaudited Consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim consolidated financial information and Rule 8-03 of Regulation S-X. Accordingly, these consolidated interim financial statements do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements.

All adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included in these unaudited consolidated interim financial statements. Operating results for the nine month period presented are not necessarily indicative of the results that may be expected for any other interim period or for the full year. The balance sheet at December 31, 2013 has been derived from audited financial statements. The unaudited consolidated interim financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto for the year ended December 31, 2013.

2. Going concern

The Company’s consolidated interim financial statements have been prepared in accordance with US GAAP applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations in the normal course of business. As at JuneSeptember 30, 2014 the Company has a working capital deficiency of $3,478,218$3,204,799 and accumulated deficit of $12,367,062.$12,259,149. Management believes that current available resources will not be sufficient to fund the Company’s planned expenditures, including past due payroll and sales tax payments, as well as estimated penalties and interest, over the next 12 months. Accordingly, the Company will be dependent upon the raising of additional capital through placement of common shares, and, or debt financing in order to implement its business plan. If the Company raises additional capital through the issuance of equity securities or securities convertible into equity, stockholders will experience dilution, and such securities may have rights, preferences or privileges senior to those of the holders of common stock or convertible senior notes. If the Company raises additional funds by issuing debt, the Company may be subject to limitations on its operations, through debt covenants or other restrictions. If the Company obtains additional funds through arrangements with collaborators or strategic partners. There is no assurance that the Company will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on the Company’s financial condition. These consolidated interim financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue operations.

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.

3. Significant accounting policies (continued)

a) Principals of consolidation and foreign currency translation

The accompanying consolidated interim 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, while the Company’s reporting currency is the U.S. dollar. All transactions initiated in Canadian dollars are translated into US dollars in accordance with ASC 830, "Foreign Currency Translation" as follows:

3. Significant accounting policies (cont’d)

a) Principals of consolidation and foreign currency translation (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.

Therelevanttranslationratesareasfollows:Forthesixmonthperiod endedJune30,2013closingrateat .9508S$:CAN$,averagerateat .9842US$:CAN$andforthesixmonthperiodendedJune30,2014closingrateat .9348The relevant translation rates are as follows: For the nine month period ended September 30, 2014 closing rate at 0.8929 US$:CAN$,averagerateat.9115 average rate at 0.9137 US$:CAN$ and for the nine month period ended September 30, 2013 closing rate at 0.9706 US$:CAN$, average rate at. 0.9707 US$:CAN$.

b) Revenue recognition

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

In particular, the Company recognizes:

Deferred revenue represents monies deposited by the patients for future services to be provided by the Company. Such monies will be recognized into revenue as the patient progresses through their treatment term.

c) Use of estimates

The preparation of consolidated interim financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the recognition, measurement and disclosure of amounts reported in the consolidated interim financial statements and accompanying notes. The reported amounts, including depreciation, allowance for doubtful accounts, inventory, accounts payable and accrued liabilities and note disclosures are determined using management's best estimates based on assumptions that reflect the most probable set of economic conditions and planned courses of action. Actual results will differ from such estimates.

3. Significant accounting policies (continued)

d) Non-monetary transactions

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

3. Significant accounting policies (cont’d)

d) Non-monetary transactions (cont’d)

e) Cash

The Company's policy is to disclose bank balances under cash, including bank overdrafts with balances that fluctuate frequently from being positive to overdrawn and term deposits with a maturity period of three months or less from the date of acquisition.

The Company has $93,480$89,290 in restricted cash held by their bank to cover against the possibility of services not performed.

f) Accounts receivable

TheCompanyprovidesanallowancefordoubtfulaccountsequaltotheThe Company provides an allowance for doubtful accounts equal to the estimateduncollectibleamounts.TheCompany's uncollectible amounts. The Company's estimateisbasedonhistoricalcollectionexperienceandareviewofthecurrentstatusoftradeaccountsreceivable.ItisreasonablypossiblethattheCompany's estimateoftheallowancefordoubtfulaccountswillchange.AtJune30,2014 andDecember31,2013,theCompanyhas$16,946 is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company's estimate of the allowance for doubtful accounts will change. At September 30, 2014 and December 31, 2013, the Company has $15,336 and $ 28,578 of allowance for doubtful accounts, respectively.

g) Inventory

Inventory is valued at the lower of cost and net realizable value. Cost is determined using the first-in, first-out method. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

h) Financial instruments

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

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

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

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

3. Significant accounting policies (cont’d)(continued)

h) Financial instruments (cont’d)(continued)

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

The Company does not have assets or liabilities measured at fair value on a recurring basis at JuneSeptember 30, 2014. The Company did not have any fair value adjustments for assets and liabilities measured at fair value on a non-recurring basis during the sixnine month period ended JuneSeptember 30, 2014.

i) Fixed assets

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

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

j) Leases

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

k) 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.

3. Significant accounting policies (cont’d)

l) Earnings per share information

FASB ASC 260-10, “Earnings Per Share” provides for calculation of "basic" and "diluted" earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income (loss) applicable to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity similar to fully diluted earnings per share. TheeffectofcomputingdilutedlossThe effect of computing diluted loss pershareisanti-dilutiveand, is anti-dilutive and, assuch,basicanddilutedlossper basic and diluted loss per shareisthe is the sameforthesixmonthsendedJune30,2014andthreeandsixmonthsendedJune30,2013. for the nine months ended September 30, 2014 and three and nine months ended September 30, 2013.

Basic and diluted income per share was the same, at three months ended JuneSeptember 2014, as there were no common share equivalents outstanding.

3. Significant accounting policies (continued)

m) Share based expenses

ASC 718-10 "Compensation - Stock Compensation" codified SFAS No. 123 prescribes accounting and reporting standards for all stock-based payments awarded to employees, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights that may be classified as either equity or liabilities. The Company should determine if a present obligation to settle the share-based payment transaction in cash or other assets exists. A present obligation to settle in cash or other assets exists if: (a) the option to settle by issuing equity instruments lacks commercial substance or (b) the present obligation is implied because of an entity's past practices or stated policies. If a present obligation exists, the transaction should be recognized as a liability; otherwise, the transaction should be recognized as equity.

The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50 "Equity - Based Payments to Non-Employees" which codified SFAS 123 and the Emerging Issues Task Force consensus in Issue No. 96-18 ("EITF 96-18"), "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services". Measurement of share-based payment transactions with non-employees shall be based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction should be determined at the earlier of performance commitment date or performance completion date.

n) Prior Period Reclassifications

Reclassifications of prior period amounts related to discontinued operations as a result of the expected 1816191 Ontario Limited disposition.

4. Recently adopted accounting pronouncements

Except for rules and interpretive releases of the SEC under authority of federal securities laws and a limited number of grandfathered standards, the FASB Accounting Standards Codification™(“ASC”) is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company.

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," which is the new comprehensive revenue recognition standard that will supersede all existing revenue recognition guidance under GAAP. The standard's core principle is that a company has reviewed all recentlywill recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective for annual and interim periods beginning on or after December 15, 2016, and early adoption is not permitted. Entities will have the option of using either a full retrospective approach or a modified approach to adopt the guidance in the ASU. The Company is currently evaluating the impact of adopting this guidance.

In June 2014, the FASB issued but not yetASU 2014-12, "Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period." This ASU provides more explicit guidance for treating share-based payment awards that require a specific performance target that affects vesting and that could be achieved after the requisite service period as a performance condition. The new guidance is effective accounting pronouncementsfor annual and interim reporting periods beginning after December 15, 2015. The Company does not expect the future adoption of any such pronouncementsthis guidance to have a significantmaterial impact on the results of operations,consolidated financial condition or cash flow.statements.

August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements – Going Concern (Topic 205-40)”,which requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern for each annual and interim reporting period. If substantial doubt exists, additional disclosure is required. This new standard will be effective for the Company for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. The Company expects to adopt this new standard for the fiscal year ending December 31, 2014 and the Company will continue to assess the impact on its consolidated financial statements.

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, JuneSeptember 30, 2014.

(a)

Credit risk Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Financial instruments that subject the Company to credit risk consist primarily of accounts receivable. Credit risk associated with accounts receivable of Greenestone Clinic Muskoka Inc. is mitigated due to balances from many customers, as well as through credit checks and frequent reviews of receivables to ensure timely collection. In addition, there is no concentration risk with the Greenestone Clinic Muskoka Inc. accounts receivable balance since balances are due from many customers. In the opinion of management, credit risk with respect to accounts receivable is assessed as low, not material and remains unchanged from the prior year.

(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 $3,204,799 and accumulated deficit of $12,259,149. 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, material and remains unchanged from the prior year. In the opinion of management, liquidity risk associated with bank overdraft of $21,335 (December 31, 2013: $126,073) is assessed as low, with zero bank indebtedness at September 30, 2014. The Company ensures that financial liabilities are placed with a financial institution with a high credit rating in order to mitigate the risk. There is a concentration risk associated with the bank indebtedness since the Company uses one financial institution.

(c)

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

i.

Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is not exposed to interest rate risk on its bank indebtedness as there is a balance of $0 at September 30, 2014. 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.

5. Financial instruments (cont’d)(continued)

(a) Credit risk

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

With respect to accounts receivable of $396,336 (December 31, 2013: $440,918), 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 addition, there is no concentration risk with the Greenestone Clinic Muskoka Inc. accounts receivable balance since balances are due from many customers.

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

(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 $3,478,218 and accumulated deficit of $12,367,062. 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, material and remains unchanged from the prior year.

In the opinion of management, liquidity risk associated with bank overdraft of $0 (December 31, 2013: $126,073) is assessed as low, with zero bank indebtedness at June 30, 2014. The Company ensures that financial liabilities are placed with a financial institution with a high credit rating in order to mitigate the risk. There is a concentration risk associated with the bank indebtedness since the Company uses one financial institution.

(c) Market risk

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

5. Financial instruments (cont’d)

6. Accounts receivable

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

6. Accounts receivable (cont’d)

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 41% of the Company’s consolidated revenue in the six month period ending June 30, 2014 (December 31, 2013: 38%).

7. Fixed assets

8. Convertible notes payable

The company has no convertible notes outstanding at JuneSeptember 30, 2014. During the 69 month period to JuneSeptember 30, 2014 $ 198,328 in notes were converted into 731,449 common shares at set rates as indicated by individual note. There was $ 48,284 in a note payable at December 31, 2013 that was reclassified to a related party payable account.

On June 30, 2014 convertible debentures totaling $93,480 had matured and were to be converted to restricted shares. This is dependent on a Directors Resolution being issued by the Company. As of the date of our report a Directors Resolution had not been formally issued. The Board of Directors has indicated that in due time they will pass the resolution. 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 June 30, 2014, the financial information presented in these consolidated interim financial statements has treated the debt of $93,480 as matured and converted into restricted shares totaling 208,151.

9. Loan payable

The Company has an automobile loan payable bearing interest 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 JuneSeptember 30, 2014 of $26,625.$33,503. Estimated principal re-payments to December 31^stSeptember 30th are as follows:

10. Short term convertible note payable

The company hasIn May 2013 the Company entered into a promissory note of up to $500,000 where the maturity date is one short term loan agreement duringyear after the period totalling $93,689. Duringlender provides the 6borrower with funds. Included is a 10% Original Issue Discount. Interest is zero for the first three months to June 30, 2014, an amount of $ 64,541 was converted into 1,045,099 common shares. And a further loan of $ 80,000 with interest accrued of $ 13,689 representsif the current balance of $93,689.

Loanprincipal is with JMJ Financial in the amount of $93,689 with anfully paid within 90 days. A one time interest rate of 12%. is applied in case of non payment within the initial 90 days.

The lender hasnote is convertible at the right, at any time after 180 days from effective date to convert alllessor of $.30 or part70% of the outstandinglowest trading price in the 25 trading days prior to conversion.

In 2013 the Company received $111,111 in proceeds and unpaid principal sum andincurred $13,333 in accrued interestinterest. In addition the Company converted $59,903 into shares of common stock based on the averageand paid $31,111 in cash against this loan. The remaining balance as of the two lowest closing prices during the 22 days prior start of conversion period.December 31, 2013 amounted to $64,541.

In 2014 the Company received $105,000 in proceeds and converted $86,579 into 1,395,991 shares of common stock. As of September 30, 2014 the remaining balance amounted to $82,962. 

11. Related party transactions

A portion of related party notes at JuneSeptember 30, 2014 is due to Greenestone Clinic Inc. in the amount of $273,195$47,265 ( December 31, 2013: $413,078). The Company is related to Greenestone Clinic Inc. as it is controlled by one of the Company’s directors. The balance owing is interestnon-interest bearing, not secured and has no specified terms of repayment.

The other portion of related party notes at JuneSeptember 30, 2014 is due to Dr. Jay Parekh in the amount of $324,216 ( December 31, 2013: $224,269). He is a shareholder of the companyCompany and a director of the subsidiary clinic. The amount due in related party fees is non-interest bearing and has no specified terms of repayment.Endoscopy clinic amounting to $347,733 (December 31, 2013 $224,269).

The Company had management fees totaling $77,223$68,163 during the sixnine month period ended JuneSeptember 30, 2014 (June(September 30, 2013: $98,420)$117,248) to the director ( Greenestone(Greenestone Clinic Inc.) for services which are included in management fees. During the three month period ended JuneSeptember 30, 2014 the company had management fees totallingtotaling $ 22,933 ( June55 (September 30, 2013 : $ 48,850 )38,525).

The Company entered into an agreement to lease premises from Cranberry Cove Holdings Ltd. at market terms. During the sixnine month period ended JuneSeptember 30, 2014, the Company had rent expense of $232,432 (June$333,639 (September 30, 2013: $272,623)$552,691) to Cranberry Cove Holdings Ltd. Cranberry Cove Holdings Ltd. is related to the Company by virtue of its shareholder being a director of the Company. During the three month period ended JuneSeptember 30, 2014 the company had rent expense of $ 82,557 ( June82,839 (September 30, 2013 : $ 141,665 )

163,602).

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.

12. Stockholders’ deficit

Authorized 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.

On March 25, 2013 the Company filed a certificate of Amendment with the Colorado Secretary of State to increase the aggregate number of shares which the Company has the authority to issue to five hundred million (500,000,000) common shares, issued at $0.01 par value per share from 100,000,000 common shares with par value at $0.01, to authorize three million (3,000,000) series A convertible preferred shares, par value of $1.00$0.01 per share, and to the authorize ten million (10,000,000) series B convertible preferred shares, par value $0.01 per share. Each series B convertible preferred shares is convertible into 10 Common shares. The amendment was approved by the Colorado Secretary of State on March 26, 2013.

Issued common shares

The Company has a total of 47,343,05547,693,055 issued and outstanding common shares as at JuneSeptember 30, 2014. At December 31, 2013 to the Company had 41,065,544 issued and outstanding common shares.

The Company issued 1,777,4402,127,490 shares of its common stock to satisfy its obligations under an aggregate principal of $ 262,869284,907 of convertible promissory notes for the sixnine month period ended JuneSeptember 30, 2014.

The companyCompany issued 4,500,000 shares of its common stock for cash of $ 382,500 during the sixnine month period ended JuneSeptember 30, 2014.

Warrants Issued

The company hadCompany conducted a private placement in the 1st quarter of 2014 that included warrants. A total of 6,000,000 warrants were issued January 16, 2014 that can be exercised on a one for one basis for shares for a 3 year term from issue date at .15 cents a share.

13. 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. which expires July 2018 and the premise agreements for the subsidiary, Greenestone Clinic Muskoka Inc. which expires March 2019.

Future minimum annual payment requirements are as follows:

14. 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.

14. Income taxes (continued)

The Company has not taken a tax position that, if challenged, would have a material effect on the financial statements for the sixnine month period ended JuneSeptember 30, 2014, 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 JuneSeptember 30, 2014 and December 31, 2013 are as follows:

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

The Company did not pay any income taxes during the sixnine month period ended JuneSeptember 30, 2014 and the year ended December 31, 2013.

The net federal operating loss carry forwards will expire in 2024 through 2034. This carry forward may be limited upon the consummation of a business combination under IRC Section 381.

15. 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 JuneSeptember 30, 2014 there was no externally imposed capital requirement to which the Company is subject and with which the Company has not complied.

16. Discontinued operations - 1816191 Ontario Limited

16. Segmented informationIn September 2014, the Board approved a plan to sell the Endoscopy business and the Company entered into a definitive agreement to sell the business on October 6, 2014 to Jaintheelal a Company owned by Dr. Jay Parekh, the Registrant’s Medical director in charge of Endoscopy for the sum of C$1,250,000. The sale price of C$1,250,000.00 includes the assumption by Jaintheelal of debt in the same amount as the sale price, which debt is owed by 1816 to the Registrant. At closing, Jaintheelal will be permitted to offset the assumed debt by up to $650,000 through the cancellation of three million shares of the Registrant’s common stock (valued at approximately C$250,000) and the cancellation of related party debt owed by 1816 to Jaintheelal and/or Jay Parekh (valued at approximately C$400,000). The remainder of the assumed debt will be repaid by 1816 to the Registrant pursuant to a six-month, interest-bearing note.

Prior to the sale, at September 30, 2014, the Company had determined that a sale of the Endoscopy business was more-likely-than-not to occur over the next twelve months. Accordingly, the Company initiated an interim goodwill impairment analysis of the Endoscopy reporting units' goodwill balances as of September 30, 2014. As a result of this analysis, the Company determined that the net book value of our Endoscopy reporting unit exceeded its estimated fair value. The Company prepared a preliminary analysis to estimate the amount of an impairment charge as of September 30, 2014, and determined that it was establishable that an impairment, if any was probable and reasonably estimable. The preliminary fair value assessments were performed by the Company taking into consideration a number of factors including the preliminary results of a hypothetical purchase price allocation. As a result of the preliminary analysis, the Company determined that no impairment charge was necessary.

Until it is sold, the assets of this business segment, previously known as the Endoscopy segment, and related liabilities were classified as held for sale in the Consolidated Balance Sheet. The operating results of this business segment are reported as Discontinued operations, net of tax in the Consolidated Statements of Operations for all periods presented. Financial results are only related to disposed of or to-be-disposed of businesses.

The Company has two reportable segments: gastrointestinal clinical servicesfollowing table provides the operating results of Discontinued operations, net of tax for the three and addictionnine months ended September 30, 2014 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.2013:

 For the six month period ended June 30, 2014

The following table provides the components of Assets held for sale and Liabilities related to assets held for sale as of September 30, 2014 and December 31, 2013 (in thousands):

For the three month period ended June 30, 2014

17. Subsequent events

On July 11, 2014 Greenestone Healthcare Corporation entered into a non-binding Exclusive Letter of Intent with Gordon Hay, Venture Academy Inc. and Venture Academy Ontario, Inc. The transaction is for the purchase of the assets and business known as Venture Academy in Ontario and British Columbia. The transaction has not been consummated to date.

As provided in the LOI, the Registrant believes that the enterprise value of the Asset to be $3,700,000.000 CAD (three million seven hundred thousand Canadian dollars), which today’s rate of 1 CAD to 0.93 USD is $ 3,439,428.98 USD (three million four hundred thirty-nine thousand four hundred twenty-eight dollars and ninety-eight cents in USD), on a cash basis, debt free. The Purchase Price shall be subject to an adjustment based on the amount by which the Net Working Capital is less than zero.

As per the terms of the LOI the Purchase Price may be paid by the way of $3,000,000.00 CAD (three million Canadian dollars), which is $2,788,726.20 USD (two million seven hundred eighty-eight thousand seven hundred twenty-six dollars and twenty cents in USD) in cash and $700,000.00 CAD (seven-hundred thousand Canadian dollars), which is $ 650,702.78 USD (six hundred fifty thousand seven hundred and two dollars in USD) by way of a two year secured convertible note to be bearing interest at 4% and secured against the Menesing Ontario property. The Note shall be convertible into shares of the Registrant at a price to be determined and defined in the definitive agreements to be completed.

On October 6, 2014, GreeneStone Healthcare Corporation, a Colorado corporation (the “Registrant”), entered into an Share Purchase Agreement, dated as of October 6, 2014, with Jaintheelal Parekh Medicine Professional Corporation (“Jaintheelal”) for the sale of all of the outstanding shares of the Registrant’s Endoscopy subsidiary, 1816191 Ontario Ltd. (“1816”), for the sum of C$1,250,000.00. The sale is expected to close on October 15, 2014.

Jaintheelal is owned by Dr. Jay Parekh, the Registrant’s Medical director in charge of Endoscopy. The sale price of C$1,250,000.00 includes the assumption by Jaintheelal of debt in the same amount as the sale price, which debt is owed by 1816 to the Registrant. At closing, Jaintheelal will be permitted to offset the assumed debt by up to $650,000 through the cancellation of three million shares of the Registrant’s common stock (valued at approximately C$250,000) and the cancellation of related party debt owed by 1816 to Jaintheelal and/or Jay Parekh (valued at approximately C$400,000). The remainder of the assumed debt will be repaid by 1816 to the Registrant pursuant to a six-month, interest-bearing note.

On October 14, 2014, GreeneStone Healthcare Corporation, a Colorado corporation (the “Registrant”), entered into a Letter Agreement with Source Capital Group, Inc. (“SCG”) under which SCG has an exclusive engagement as the Registrant’s financial adviser to provide the Registrant with up to $40,000,000 in a structured term debt facility (“Financing”). The Registrant will use the Financing for acquisitions, refinancing its capital structure and general working capital.

Upon signing of a term sheet for any Financing, the Registrant will pay SCG a non-refundable retainer fee. The Registrant can apply the amount of the retainer against any cash fees payable to SCG at the closing for the Financing (which fees are briefly described below).

At the closing for any Financing, the Registrant will pay SCG a cash fee plus warrants to purchase a percentage of the number of shares or warrants issued to the lender or investor providing the Financing.

The term of the Letter Agreement is 90 days and will automatically renew for successive 30 day periods unless either the Registrant or SCG gives 30 days’ notice of termination.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

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

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

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates. This discussion and analysis should be read in conjunction with the Company’s financial statements and accompanying notes to the financial statements for the quarter ended JuneSeptember 30, 2014.

Plan of Operation

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

 In 2014 and beyond, the Company plans to market the current endoscopy segmentacquisition 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 2013, the Company’s endoscopy business segment at the Yonge Street Facility was only operating at approximately 40% of its potential capacity. new facilities.

The Company believes that it will need a minimum of $2,000,000 to cover its planned operations over the next 12 months. This estimate includes (i) $200,000 for marketing and (ii) 1,800,000 for tax obligations.

The Company has reduced its rent at the Bala property commencing April 1, 2014. The rent is now $ 30,000 per month compared to $ 55,000 in fiscal 2013. The Company continues to evaluateplansevaluate plans to purchase the Bala Property.

The Company entered into a 5 year lease commencing August 1, 2013 at its Endoscopy clinic at 5734 Yonge Street.property.

Results of Operations

For the Three Months Ended JuneSeptember 30, 2014, Compared to the Three Months Ended JuneSeptember 30, 2013

Revenue

During the three months ended JuneSeptember 30, 2014, revenues increased to $1,641,094,$1,197,122, from $ 1,528,9441,115,318 during the three months ended JuneSeptember 30, 2013, an increase of $ 112,150.81,804. This increase is mainly attributable to a steadyan increase in business volume sinceoccupancy at the Company began operations. Revenue from the endoscopy practice was $ 635,536, compared to revenue of $ 598,804 during the three months ended June 30, 2013, an increase of $ 36,732. Revenue in the mental health division for the three months ended June 30, 2014, was $ 1,005,557 compared to $ 930,140 for the three months ended June 30, 2013, an increase of $ 75,417.Company’s treatment facility. The Company believes that revenue will continue to grow steadily, especially in the mental health division, 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. grows.

Cost of Revenue

Our cost of revenue for the three months ended June 30, 2014, was $ 358,419, compared to $ 340,020 for the three months ended June 30, 2013, an increase of $ 18,199. The cost of revenue primarily 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 HealthInsurance Plan (OHIP). In general, the doctor performing the actual medical procedure will receive approximately 57% of the amount received from OHIP adjusted for amounts deducted from those amounts received for facility fees.

Gross Profit

During the three months ended June 30, 2014, gross profits increased to $1,282,675, from $ 1,188,725 during the three months ended June 30, 2013, an increase of $ 93,950. This increase is mainly attributable to an increase in business volume since the Company began operations.

Operating Expenses

Operating expenses for the three months ended JuneSeptember 30, 2014, were $ 1,180,213,989,610, compared to $ 1,538,9991,045,010 for the three months ended JuneSeptember 30, 2013, a decrease of $ 358,786.55,400. This decrease in expenses is due to cost reductions at the Bala facility and lower salary and rent costs due to sale of St. Clair aftercare program.property. Operating expenses for the three months ended JuneSeptember 30, 2014, primarily consisted of salaries and wages to medical support staff of $ 684,743;576,618; rent payments of $ 161,80482,839 and general and administrative expenses of $ 161,763.130,342.

Net ProfitIncome from Continuing Operations

During the three months ended JuneSeptember 30, 2014, the net profitincome from continuing operations was $ 102,462,210,152, compared to a profit of $ 2,503 during the three months ended September 30, 2013, an increase of $ 207,649. This increase is attributable to the steady increase in revenues and business operations with a lower cost base.

Net Loss from Discontinued Operations

During the three months ended September 30, 2014, the net loss from discontinued operations was $ 102,241, compared to a loss of $ 350,27434,132 during the three months ended JuneSeptember 30, 2013, an increase of $ 452,736.68,109. This increasedecrease is attributable to the steady increase in revenues and business operations with a lower cost base.

For the SixNine Months Ended JuneSeptember 30, 2014, Compared to the SixNine Months Ended JuneSeptember 30, 2013

Revenue

During the sixnine months ended JuneSeptember 30, 2014, revenues decreased to $ 2,779,072,2,812,940 from $ 2,973,2682,954,229 during the sixnine months ended JuneSeptember 30, 2013, a decrease of $194,197.$ 141,289. This decrease is mainly attributable lower revenue in Quarter 1, possibly due to cold weather. Revenue from the endoscopy practice was $1,163,253, compared to revenue of $ 1,137,191 during the six months ended June 30, 2013, an increase of $26,062. Revenue in the mental health division for the six months ended June 30, 2014, was $1,615,818 compared to $1,836,077 for the six months ended June 30, 2013, a decrease of $ 220,259.weather, partially offset by increased occupancy. 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. 

Cost of Revenue

Our cost of revenue for the six months ended June 30, 2014, was $646,893, compared to $633,543 for the six months ended June 30, 2013, an increase of 13,350. The cost of revenue primarily 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 57% of the amount received from OHIP adjusted for amounts deducted from those amounts received for facility fees.

Gross Profit

During the six months ended June 30, 2014, gross profits decreased to $2,132,178, from $2,339,725 during the six months ended June 30, 2013, a decrease of $207,547. This decrease is mainly attributable to lower revenue in Mental Health division in Quarter 1, we believe related to cold winter.

Operating Expenses

Operating expenses for the sixnine months ended JuneSeptember 30, 2014, were $2,564,282,$ 2,908,983, compared to $3,042,410$3,434,247 for the sixnine months ended JuneSeptember 30, 2013, a decrease of $478,128.$ 525,264. This decrease in expenses is due to cost reductions at Bala facilityproperty and lower salary and rent costs due to sale of St. Clair aftercare program.costs. Operating expenses for the sixnine months ended JuneSeptember 30, 2014, primarily consisted of salaries and wages to medical support staff of $1,393,975;$1,724,194; rent payments of $421,699$ 333,639 and general and administrative expenses of $325,041.$393,291.

Net Loss from Continuing Operations

During the sixnine months ended JuneSeptember 30, 2014, the net loss from continuing operations was $ 432,104,115,031, compared to a loss of $ 702,685625,541 during the sixnine months ended JuneSeptember 30, 2013, a decrease of $ 510,510. This increase is attributable to the steady increase in revenues and business operations with a lower cost base.

Net Loss from Discontinued Operations

During the nine months ended September 30, 2014, the net loss from discontinued operations was $ 209,161, compared to a loss of $ 108,773 during the nine months ended September 30, 2013, an increase of $ 270,582.

100,388.

Liquidity and Capital Resources

The following table summarizes working capital at JuneSeptember 30, 2014

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 June 30, 2014 was $396,336. The Company 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 37% of the Company’s consolidated sales for the six months ended June 30, 2014, 38% for the year ended December 31, 2013.

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:

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 for the rendering of services when they are earned; specifically when all the following conditions are met:

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

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.

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, accounts payable and accrued liabilities, and note disclosures are determined using management’s best estimates based on assumptions that reflect the most probable set of economic conditions and planned courses of action. Actual results will differ from such estimates.

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:

Cash

The Company’s policy is to disclose bank balances under cash, including bank overdrafts with balances that fluctuate frequently from being positive to overdrawn and term deposits with a maturity period of three months or less from the date of acquisition.

The Company’s policy is to disclose restricted cash not available for current purposes.

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. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

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 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:

The Company does not have assets or liabilities measured at fair value on a recurring basis at JuneSeptember 30, 2014, and JuneSeptember 30, 2013, respectively. The Company did not have any fair value adjustments for assets and liabilities measured at fair value on a non-recurring basis during the sixnine months period ended JuneSeptember 30, 2014 and JuneSeptember 30, 2013, respectively.

Fixed Assets

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

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

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.

Recently adopted accounting pronouncements

I Except for rules and interpretive releases of the SEC under authority of federal securities laws and a limited number of grandfathered standards, the FASB Accounting Standards Codification™(“ASC”) is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company.

Recently adopted accounting pronouncements

In December 2011,May 2014, the Financial Accounting Standards Board “FASB”FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," which is the new comprehensive revenue recognition standard that will supersede all existing revenue recognition guidance onunder GAAP. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects 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 isconsideration to which the company expects to be adoptedentitled in exchange for those goods or services. This ASU is effective for annual reportingand interim periods beginning on or after January 1, 2013,December 15, 2016, and interim periods within those annual periods.early adoption is not permitted. Entities will have the option of using either a full retrospective approach or a modified approach to adopt the guidance in the ASU. The Company is currently evaluating the impact of adopting this guidance.

In June 2014, the FASB issued ASU 2014-12, "Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period." This ASU provides more explicit guidance for treating share-based payment awards that require a specific performance target that affects vesting and that could be achieved after the requisite service period as a performance condition. The new guidance is to be retrospectively appliedeffective for all comparativeannual and interim reporting periods presented.beginning after December 15, 2015. The Company has reviewed and adopted this guidance. The Company has concluded that does not expect the result of adoptingadoption of this guidance does notto have a material impact on the consolidated financial statements.

August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements – Going Concern (Topic 205-40)”,which requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern for each annual and interim reporting period. If substantial doubt exists, additional disclosure is required. This new standard will be effective for the Company for annual and annualinterim periods beginning after December 15, 2016. Early adoption is permitted. The Company expects to adopt this new standard for the fiscal year ending December 31, 2014 and the Company will continue to assess the impact on its consolidated financial statements.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We do not hold any derivative instruments and do not engage in any hedging activities.

Item 4. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the reports we file pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”), to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide a reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Management designed the disclosure controls and procedures to provide reasonable assurance of achieving the desired control objectives.

We carried out an evaluation, under the supervision and with the participation of our management, including our PEO and PFO, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report. Based upon that evaluation, the PEO and PFO concluded that the Company’s disclosure controls and procedures were not effective.

(b) Changes in Internal Control over Financial Reporting

There have been no changes in our internal controls over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act) during the quarter ended JuneSeptember 30, 2014, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

Not applicable to a smaller reporting company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

There were no unregistered salesOn September 19, 2014, the Company issued 350,000 shares of equity securitiescommon stock to a note holder upon the conversion of a note at a conversion price of $0.06 per share.

The shares of the Company’s common stock issued during the six monthsthree month period ended June 30, 2014.2014 as described above qualified for an exemption under Section 4(a)(2) of the Securities Act of 1933, because the issuance of shares by the Company did not involve a public offering. The offering was not a “public offering” as defined in Section 4(a)(2) due to the insubstantial number of persons involved in each of the issuances, size of the offering, manner of the offering and number of shares offered. Based on an analysis of the above factors, the Company has met the requirements to qualify for exemption under Section 4(a)(2) of the Securities Act for the above securities transaction.

Item 3. Defaults Upon Senior Securities.

There were no defaults upon senior securities during the sixnine months ended JuneSeptember 30, 2014.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

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

Item 6. Exhibits.

* filed herewith

** XBRL Information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.