Entia Biosciences (ERGO) 10-Q 2010 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X]	Quarterly report pursuant Section 13 or 15(d) of the Securities Exchan ge Act of 1934
	For the quarterly period ended September 30, 2010.
[  ]	Transition report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period from _______ to _______.

000-52864

(Commission file number)

 

Total Nutraceutical Solutions, Inc.

 (Exact name of small business issuer as specified in its charter)

Nevada	26-0561199
(State or other jurisdiction	(IRS Employer
of incorporation or organization)	Identification No.)

PO Box 910, Stevenson, WA 98648

 (Address of principal executive offices)

(509) 427-5132

 (Registrant’s telephone number )

__________________________

 (Former name, former address and former fiscal year, if changed since last report)

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 past 90 days.   Yes [X]  No [  ]

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 the definitions of “lar ge accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

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

On November 22, 2010, 54,012,470 shares of the registrant's common stock, par value $.001 per share, were outstanding.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION		3
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25
PART II – OTHER INFORMATION		26
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	26
Item 4.	Submission of Matters to a Vote of Security Holders	26
Item 5.	Other Information	26
Item 6.	Exhibits	27
SIGNATURES		27

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PART I – FINANCIAL INFORMATION

Item1. Financial Statements

Total Nutraceutical Solutions, Inc.

September 30, 2010 and 2009

Contents                                                                  &n bsp;                                                                                                                                         Page(s)

Consolidated Balance Sheets at September 30, 2010 (Unaudited) and December 31, 2009

4

Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2010 and 2009 (Unaudited)  5

Consolidated Statement of Stockholders’ Equity for the Interim Period Ended September 30, 2010 (Unaudited)

6

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009 (Unaudited)

7

Notes to the Consolidated Financial Statements (Unaudited)

8-22

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TOTAL NUTRACEUTICAL SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
					September 30, 2010			December 31, 2009
					(Unaudited)
Assets
Current Assets
	Cash			$	61,047		$	48,141
	Accounts receivable, net				68,330			3,362
	Inventory				344,704			342,253
	Prepaid expenses				31,596			31,418
	Current maturities of lease receivable				12,833			11,328
	Notes receivable - related party				62,500			-
	Other current assets				3,139			-
		Total Current Assets			584,149			436,502
Property and Equipment
	Property and equipment				50,520			20,712
	Accumulated depreciation				(6,792)			(2,290)
		Property and Equipmen t, net	&n bsp;		43,728			18,422
Patents acquired and patents pending, net					70,182			35,984
Lease receivable, net of current maturities					3,746			12,237
			&nbs p;
Total Assets				$	701,805		$	503,145
Liabilities and Stockholders' Equity
Current Liabilities:
	Accounts payable			$	186,817		$	111,347
	Accrued compensation - officer				107,661			10,000
	Short-term convertible notes payable, net of discount				74,359			-
	Note payable - insurance				3,867			16,703
		Total Current Liabilities			372,704			138,050
Long Term Liabilities:						&nb sp;
	Notes payable - related party, net of discount				18,750			-
	Convertible notes payable, net of discount				235,500			-
		Total Long Term Liabilities			254,250			-
Total Liabilities					626,954			138,050
Stockholders' Equity
	Preferred stock: $.001 par value, 5,000,000 shares authorized;
		none issued or outstanding			-			-
	Common stock: $.001 par value, 150,000,000 shares authorized;
		54,012,470 and 52,012,470 shares issued and outstanding, respectively			54,013			52,013
	Additional paid-in capital				1,769,889			1,148,009
	Deferred compensation				(12,250)			(20,303)
	Accumulated deficit				(1,736,801)			(814,624)
		Total Stockholders' Equity			74,851			365,095
Total Liabilities and Stockholders' Equity				$	701,805		$	503,145
See accompanying notes to the consolidated financial statements.

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TOTAL NUTRACEUTICAL SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
				Three Months		Three Months	Nine Months			Nine Months
				Ending		Ending	Ending			Ending
				September 30, 2010		September 30, 2009	September 30, 2010			September 30, 2009
				(Unaudited)		(Unaudited)	(Unaudited)			(Unaudited)
REVENUES			$	96,705	$	39,863	295,737		$	39,863
COST OF GOODS SOLD				39,644		25,306	123,343			25,306
GROSS PROFIT				57,061		14,557	172,394			14,557
OPERATING EXPENSES
	Advertising and promotion			17,170		932	161,037			25,075
	Sales commissions			2,084		6,251	18,449			6,251
	Consulting fee - officer			30,000		-	90,000			-
	Professional fees			26,625		70,857	89,705			102,203
	Consulting fees			247,445		81,065	331,673			177,572
	General and administrative			94,918		46,416	220,525			131,679
		Total Operating Expenses		418,243		205,521	911,389			442,780
LOSS FROM OPERATIONS				(361,182)		(190,964)	(738,995)			(428,223)
								;
OTHER (INCOME) EXPENSES
	Interest income			(2,475)		(2,032)	(3,128)			(4,222)
	Interest expense			70,142		35	186,310			418
		Total Other (income) Expense		67,667		(1,997)	183,182			(3,804)
LOSS BEFORE TAXES				(428,849)		(188,967)	(922,177)			(424,419)
INCOME TAXES				-		-	-			-
NET LOSS			$	(428,849)	$	(188,967)	(922,177)		$	(424,419)
NET LOSS PER COMMON SHARE
	- BASIC AND DILUTED:		$	(0.01)	$	(0.00)	(0.02)		$	(0.01)
	Weighted common shares outstanding
		- basic and diluted		52,773,270		51,945,803	52,268,870			50,946,759
									&n bsp;
See accompanying notes to the consolidated financial statements.

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TOTAL NUTRACEUTICAL SOLUTIONS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE INTERIM PERIOD ENDED SEPTEMBER 30, 2010
(UNAUDITED)
		Common				Additional							Total
		Stock		Par		Paid		Deferred			Accumulated		Stockholders'
		Shares		Value		In Capital		Compensation			Deficit		Equity
Balance - December 31, 2008		49,673,750	$	49,674	$	510,776	$	-		$	(120,170)	$	440,280
Shares issued for cash in February 2009,
	net of offering costs of $15,000	600,000		600		104,430			&nb sp;				105,030
Wa rrants issued in connection with the
	sale of common shares in February 2009					29,970							29,970
Issuance of warrants for future services in Feburary 2009						8,360		(8,360)					-
Issuance of warrants for future services in April 2009						8,530		(8,530)					-
Shares issued for agreement in March 2009		720		1		1 79							180
Shares issued for cash in June 2009,
	net of offering costs of $47,068	1,638,000		1,638		265,112							266,750
Warrants issued in connection with the
	sale of common shares in June 2009					95,682							95,682
Issuance of warrants for future services in July 2009						21,250		(21,250)					-
Issuance of warrants for future services in September 2009						4,250		(4,250)					-
Shares issued for cash in September 2009		100,000		100		24,900							25,000
Warra nts issued for future services in October 2009						9,570		(9,570)					-
Warrants issued for future services in December 2009						15,000		(7,500)					7,500
Issuance of warrants in connection
	with convertible note payable in December 2009	& nbsp;				22,200							22,200
Beneficial conversion feature in connection
	with convertible note payable in December 2009					27,800							27,800
Amortization of deferred compensation								39,157					39,157
Net loss											(694,454)		(694,454)
Balance - December 31, 2009		52,012,470		52,013		1,148,009		(20,303)			(814,624)		365,095
Issuance of warrants in connection with short-term
	convertible note payable issued in January 2010					49,200							49,200
Beneficial conversion feature in connection with short-term
	convertible note payable issued in January 2010					50,800							50,800
&nb sp;Issuance of warrants in connection with
	convertible note payable issued in February 2010					74,550							74,550
Beneficial conversion feature in connection with
	convertible note payable issued in February 2010					75,450							75,450
Issuance of warrants in connection with
	convertible note payable issued in March 2010					68,700							68,700
Beneficial conversion feature in connection with
	convertible note payable issued in March 2010					68,700							68,700
Issuance of warrants for future services				26,480		(26,480)					-
Issuance of common stock for services		2,000,000		2,000		208,000							210,000
Amortization of deferred compensation								34,533					34,533
Net loss											(922,177)		(922,177)
Balance - September 30, 2010		54,012,470	$	54,013	$	1,769,889	$	(12,250)		$	(1,736,801)	#	74,851
See accompanying notes to the consolidated financial statements.

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TOTAL NUTRACEUTICAL SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
						Ni ne Months		Nine Months
						Ended		Ended
						September 30, 2010		September 30, 2009
						(Unaudited)		(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss					$	(922,177)	$	(424,419)
Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation					4,502		673
	Amortization of discount on short-term convertible note payable					74,359		-
	Amortization of discount on notes payable - related parties					18,750		-
	Amortization of discount on convertible notes payable					72,901		-
	Stock-based compensation					244,533		(21,112)
	Changes in operating assets and liabilities:
		Accounts receivable				(64,968)		(30,731)
		Inventory		&nbs p;		(2,451)		(30,909)
		Prepaid expenses				(178)		15,742
		Other current assets	;			(3,139)		(3,458)
		Accounts payable				75,469		25,671
		Accrued compensation - officer				97,661&n bsp;		-
NET CASH USED IN OPERATING ACTIVITIES						(404,738)		(468,543)
CASH FLOWS FROM INVESTING ACTI VITIES:
	Note receivable - related party					(62,500)		(135,000)
	Purchase of furniture and equipment					(29,808)		(3,960)
	Patents acquired and patents pending, net					(34,198)		-
	Lease receivable					14,538		(24,269)
	Collection of lease receivable					(7,552)		-
NET CASH USED IN INVESTING ACTIVITIES						(119,520)		(163,229)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Proceeds from short-term convertible notes payable					100,000		-
	Proceeds from note payable - insurance					4,796		-
	Repayment of note payable - insurance					(17,632)		(16,539)
	Proceeds from convertible notes payable					450,000		-
	Proceeds from sale of common stock, net of offering cost					-		565,002
NET CASH PROVIDED BY FINANCING ACTIVITIES						537,164		548,463
NET CHANGE IN CASH						12,906		(83,309)
Cash at beginning of period						48,141		273,171
Cash at end of period					$	61,047	$	189,862
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
	Interest paid				$	485	$	418
	Income taxes paid				$	-	$	-
							&n bsp;
SUPPLEMENTAL DISCLOSURE OF NONCASH FLOWS FINANCING
	AND INVESTING ACTIVITIES:
	Warrants issued for future services				$	26,480	$	-
See accompanying notes to the consolidated financial statements.

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Total Nutraceutical Solutions, Inc.

September 30, 2010 and 2009

Notes to the Financial Statements

(Unaudited)

NOTE 1 - ORGANIZATION AND OPERATIONS

Generic Marketing Services, Inc. (“Generic Marketing Services”) was incorporated on July 19, 2007 under the laws of the State of Nevada .  The company was incorporated as a subsidiary of Basic Services, Inc. (“Basic Services”), a Nevada corporation.   On December 31, 2007, Basic Services decided to spin off its subsidiary.  On October 8, 2008, Generic Marketing Services filed a Certificate of Amendment to its Articles of Incorporation with the Nevada Secretary of State to change its corporate name from Generic Marketing Services, Inc. to “Total Nutraceutical Solutions, Inc.” (“TNS” or the “Company”).  The Company engages in the distribution of organic nutraceutical products in the United States of America.

Formation of a joint venture

On March 26, 2010 the Company entered into a Profit Sharing Agreement or Direct Marketing Affiliates Project (DMAP) with American Charter & Marketing LLC (ACM) and Delta Group Investments Limited (DGI), with the primary focus of undertaking a direct mail marketing campaign designed to sell nutraceutical products developed and manufactured by the Company.  The Company will act as Managing Affiliate.  DGI will provide $300,000 in the form of a loan, as starting capital for the project (see Note 5), which is guaranteed by the Company.   The financial results of the DMAP are consolidated into these financial statements.  The net profits of the DMAP project will be shared with 25% going to the Company, 25% to DGI, 25% to ACM and 25% as a return on the initial loan.  The DMAP project is to be in effect for three (3) years from date of execution.  The DMAP agreement contains an option to convert profits into shares of the Company’s restricted common stock.  Certain administrative expenses incurred by the Company were reimbursed by the DMAP and are classified on the Consolidated Statement of Operations as administrative e xpenses.  The amount of reimbursed expenses was approximately $2,000 for the three months ending September 30, 2010 and $14,000 for the nine months ending September 30, 2010.  This agreement is accounted for in accordance with Topic 525.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accompanying consolidated unaudited interim financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) to Form 10-Q and Article 8 of Regu lation S-X.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented.  Unaudited interim results are not necessarily indicative of the results for the full year.  These unaudited interim financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2009 and notes thereto contained in the information as part of the Company’s Annual Report on Form 10-K filed with the SEC on April 15, 2010.

The consolidated financial statements include all accounts of TNS as of September 30, 2010 and 2009 and for the interim periods then ended; and all accounts of DMAP as of September 30, 2010 and for the period from March 26, 2010 (inception) through September 30, 2010.  All inter-company balances and transactions have been eliminated.

Reclassifications

Certain reclassifications have been made in our fiscal 2009 financial statements to conform to current year’s presentation of financial information.

Use of estimates

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

Fiscal year end

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The Company elected July 31 as its initial fiscal year end date upon its formation.  On November 11, 2008, the Company changed its fiscal year end date from July 31 to December 31.

Cash equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Accounts receivable

Accounts receivable are recorded at the invoiced amount, net of allowance for doubtful accounts.  Allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable.  The Company determines the allowance based on historical write-off experience, customer specific facts and economic conditions.  The allowance for doubtful accounts was $1,138 at September 3 0, 2010 and $0 at December 31, 2009.  Bad debt expense is included in general and administrative expenses, if any.

Outstanding account balances are reviewed individually for collectability.  Account balances are charged off against allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

The Company does not have any off-balance-sheet credit exposure to its customers.

Inventory

The Company values its inventory, consisting of purchased raw materials and finished goods, at the lower of cost or market.  Cost is determined on the First-in and First-out (“FIFO”) method.  The Company regularly reviews its inventory on hand and, when necessary, records a provision for excess or obsolete inventory based primarily on current selling price.  The Company determined that there was no inventory obsolescence as of September 30, 2010 or December 31, 2009.

Property and equipment

Property and equipment are recorded at cost.  Expenditures for major additions and betterments are capitalized.  Maintenance and repairs are charged to operations as incurred.  Depreciation of property and equipment is computed by the straight-line method (after taking into account their respective estimated residual values) over the assets estimated useful lives of three (3) or five (5) years.  Upon sale or retirement of property and equipment, the related cos t and accumulated depreciation are removed from the accounts and any gain or loss is reflected in statements of operations.

Patents acquired and patents pending

The Company has adopted the guidelines as set out in subtopic 350-30 of the FASB Accounting Standards Codification (“Subtopic 350-30”) for patents.  Under the requirements as set out in Subtopic 350-30, the Company amortizes the costs of acquired patents over their remaining legal lives, estimated useful lives, or the term of the contract, whichever is shorter.  All internally developed process costs incurred to the point when a patent application is to be filed are expensed as incurred and classified as research and development costs.  Patent application costs, generally legal costs, thereafter incurred, are capitalized pending disp osition of the individual patent application, and are subsequently either amortized based on the initial patent life granted, generally fifteen (15) to twenty (20) years for domestic patents and five (5) to twenty (20) years for foreign patents, or expensed if the patent application is rejected.  The costs of defending and maintaining patents are expensed as incurred.  Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.

Impairment of long-lived assets

The Company follows paragraph 360-10-35-17 of the FASB Accounting Standards Codification for its long-lived assets. The Company’s long-lived assets, which include property and equipment, intangible assets and patents pending are reviewed for impairment whenever events or changes in circumstances ind icate that the carrying amount of an asset may not be recoverable.

The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets.  Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.  If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.  The Company determined that there were no impairments of long-lived assets as of September 30, 2010 or December 31, 2009.

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Lease receivable

The Company follows paragraph 840-30-35-23 of the FASB Accounting Standards Codification and amortizes the unearned income and initial direct costs on a direct financing lease to income over the term of the lease to produce a constant periodic rate of return on the net investment in the lease.

Discount on convertible notes payable

The Company follows subtopic 470-20 of the FASB Accounting Standards Codification (“Subtopic 470-20”) “Debt with Conversion and Other Options,” when accounting for convertible notes payable. The Company allocates the proceeds received between convertible notes payable and warrants, if applicable. The resulting warrants discount from the face amount of the convertible notes payable is amortized using the effective interest method over the life of the debt instruments. After allocating a portion of the proceeds to the warrants, the effective conversion price of the convertible notes payable can be determined. If the effective conversion price is lower than the market price at the date of issuance, a beneficial conversion feature needs to be recorded as a discount to the convertible notes payable. The beneficial conversion feature discount needs to be amortized using the effective interest method over the life of the debt in struments.  

Fair value of financial instruments

The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and has adopted paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (“U.S. GAAP”), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to mea sure fair value into three (3) broad levels.  The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

Level 1	Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
Level 2	Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
Level 3	Pricing inputs that are generally observable inputs and not corroborated by market data.

The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, prepaid expenses, accounts payable and accrued officer’s compensation, approximate their fair values because of the short maturity of these instruments.  The Company’s lease receivable, note payable and convertible notes payable approximate the fair value of such instruments based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangements at September 30, 2010 and December 31, 2009.

The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value at September 30, 2010 or December 31, 2009, nor gains or losses are reported in the statement of operations that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the interim periods ended September 30, 2010 or 2009.

Revenue recognition

The Company follows the guidance of paragraph 605-10-S99-1 of the FASB Accounting Standards Codification fo r revenue recognition.  The Company recognizes revenue when it is realized or realizable and earned.  The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.

The Company recognizes its revenue from sales contracts with customers with revenues being generated upon the shipment of product.  Persuasive evidence of an arrangement is demonstrated via invoice, product delivery is evidenced by warehouse shipping log as well as a signed bill of lading from the trucking company or third party carrier and title transfers upon shipment, based on free on board (“FOB”) warehouse; the sales price to the customer is fixed upon acceptance of the purchase order and there is no separate sales rebate, discount, or volume incentive.

- 10 -

Shipping and handling costs

The Company accounts for shipping and handling fees in accordance with paragraph 605-45-45-19 of the FASB Accounting Standards Codification.  While amounts charged to customers for shipping products are included in revenues, the related costs are classified in cost of goods sold as incurred.

Advertising costs

Advertising costs are expensed as incurred.

Research and development

The Company follows paragraph 730-10-25-1 and 730-20-25-11 of the FASB Accounting Standards Codification for research and development costs.  Research and development costs are charged to expense as incurred.  Research and development costs consist primarily of remuneration for research and development staff, depreciation and maintenance expenses of research and development equipment, material and testing costs for research and development as well as research and development arrangements with unrel ated third party research and development institutions.  Those research and development arrangements usually involve one specific research and development project of the development of a specific drug compound.  Often times, the Company makes non-refundable advances upon signing of these arrangements.  The Company adopted paragraph 730-20-25-13 and 730-20-35-1 of the FASB Accounting Standards Codification for those non-refundable advances.  Non-refundable advance payments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized.  Such amounts are recognized as an expense as the related goods are delivered or the related services are performed.  Management continues to evaluate whether the Company expect the goods to be delivered or services to be rendered.  If the management does not expect the goods to be delivered or services to be rendered, the capitalized advance payment are charged to expense.

Foreign currency transactions

The Company applies the guidelines as set out in Section 830-20-35 of the FASB Accounting Standards Codification (“Section 830-20-35”) for foreign currency transactions.  Pursuant to Section 830-20-35 of the FASB Accounting Standards Codification, foreign currency transactions are transactions denominated in currencies other than U.S. Dollar, the Company’s functional and reporting currency.  Foreign currency transactions may produce receivables or payables that are fixed in terms of the amount of foreign currency that will be received or paid.  A change in exchange rates between the functional currency and the currency in which a transaction is denominated increases or decreases the expected amount of functional currency cash flows upon settlement of the transac tion. That increase or decrease in expected functional currency cash flows is a foreign currency transaction gain or loss that generally shall be included in determining net income for the period in which the exchange rate changes. Likewise, a transaction gain or loss (measured from the transaction date or the most recent intervening balance sheet date, whichever is later) realized upon settlement of a foreign currency transaction generally shall be included in determining net income for the period in which the transaction is settled.

Equity instruments issued to parties other than employees for acquiring goods or services

The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of section 505-50-30 of the FASB Accounting Standard s Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.  The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.

The fair value of each option/warrant award is estimated on the date of grant using a Black-Scholes option-pricing valuation model.  The ranges of assumptions for stock options and warrants are as follows:

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· The expected life of options/warrants granted is derived from paragraph 718-10-S99-1 of the FASB Accounting Standards Codification and represents the period of time the options are expected to be outstanding.

· The expected volatility is based on a combination of the historical volatility of comparable companies’ stock over the contractual life of the options.

· The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the contractual life of the option/warrant.

· The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the contractual life of the option.

The Company’s policy is to recognize compensation cost for awards with only service conditions and a graded vesting schedule on a straight-line basis over the requisite service period for the entire award.  Additionally, the Company’s policy is to issue new shares of common stock to satisfy stock option/warrant exercises.

Income taxes

The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.  Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.  Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of income and comprehensive income in the period that includes the enactment date.

The Company adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25&# 148;).  Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.  Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.  The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.  The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of Section 740-10-25.

Net income (loss) per common share

Net income (loss) per common share is computed pursuant to paragraph of 260-10-45-10 of the FASB Accounting Standards Codification.  Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period.  Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock and potentially outstanding shares of common stock during the period to reflect the potential dilution.   

The following table shows the weighted-average number of potentially outstanding dilutive shares excluded from the diluted net loss per share calculation for the interim periods ended September 30, 2010 and 2009 as they were anti-dilutive.

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	Weighted average number of potentially outstanding dilutive shares
	For the nine months ende d September 30, 2010			For the nine months ended September 30, 2009
&n bsp;
Warrants issued, exercisable and outstanding in connection with the sale of common stock from August 2008 through October 2008		2,650,000			2,650,000
Warrants issued, exercisable and outstanding in connection with the sale of common stock on February 3, 2009		660,000			660,000
Warrants issued, exercisable and outstanding as compensation on February 3, 2009		50,000			50,000
Warrants issued, exercisable and outstanding as compensation on April 1, 2009		50,000			50,000
Warrants issued, exercisable and outstanding in connection with the sale of common stock June 9, 2009		1,801,800			1,801,800
Warrants issued, exercisable and outstan ding as compensation from June 2009 to September 2009		150,000			150,000
Warrants issued, exercisable and outstanding as compensation from October 1, 2009, to December 31, 2009		169,000			-
Convertible notes payable issued on December 30, 2009 maturing on December 31, 2011 with 6.0% interest per annum, convertible to common shares at $.20 per share		250,000			-
Warrants issued, exercisable and outstanding in connection with the issuance of Convertible notes payable on December 30, 2009		250,000			-
Warrants issued, exerci sable and outstanding as compensation on January 1, 2010		125,000			-
Convertible notes payable issued on January 12, 2010, February 18, 2010 and March 26, 2010, convertible to common shares		2,450,000			-
Warrants issued, exercisable and outstanding in connection with the issuance of Convertible notes payable on January 12, 2010, February 18, 2010 and March 31, 2010		1,850,000			-
Warrants issued, exercisable and outstanding as compensation from April 2010 to June 2010		27,000			-
Warrants issued, exercisable and outstanding as compensation from July 2010 to September 2010		32,500			-
Interests accrued on convertible notes payable, convertible to common shares		84,801
			& nbsp;
Total potentially outstanding dilutive shares		10,600,101			5,361,800

Commitments and contingencies

The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies.  Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.

Cash flows reporting

The Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments.  The Company reports the reporting

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currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB Accounting Standards Codification.

Subsequent events

The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements are issued.  Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.

Recently issued accounting pronouncements

In January 2010, the FASB issued the FASB Accounting Standards Update No. 2010-01 “Equity Topic 505 – Accounting for Distributions to Shareholders with Components of Stock and Ca sh”, which clarify that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in EPS prospectively and is not a stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings Per Share (“EPS”)).  Those distributions should be accounted for and included in EPS calculations in accordance with paragraphs 480-10-25-14 and 260-10-45-45 through 45-47 of the FASB Accounting Standards codification.  The amendments in this Update also provide a technical correction to the Accounting Standards Codification.  The correction moves guidance that was previously included in the Overview and Background Section to the definition of a stock dividend in the Master Glossary.  That guidance indicates that a stock dividend takes nothing from the property of the cor poration and adds nothing to the interests of the stockholders.  It also indicates that the proportional interest of each shareholder remains the same, and is a key factor to consider in determining whether a distribution is a stock dividend. The amendments in this Update are effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis.

In January 2010, the FASB issued the FASB Accounting Standards Update No. 2010-02 “Consolidation Topic 810 – Accounting and Reporting for Decreases in Ownership of a Subsidiary – a Scope Clarification”, which provides amendments to Subtopic 810-10 and related guidance within U.S. GAAP to clarify that the scope of the decrease in ownership provisions of the Subtopic and related guidance applies to the following:

1.

A subsidiary or group of assets that is a business or nonprofit activity

2.

A subsidiary that is a business or nonprofit activity that is transferred to an equity method investee or joint venture

3.

An exchange of a group of assets that constitutes a business or nonprofit activity for a noncontrolling interest in an entity (including an equity method investee or joint venture).

The amendments i n this Update also clarify that the decrease in ownership guidance in Subtopic 810-10 does not apply to the following transactions even if they involve businesses:

1.

Sales of in substance real estate.  Entities should apply the sale of real estate guidance in Subtopics 360-20 (Property, Plant, and Equipment) and 976-605 (Retail/Land) to such transactions.

2.

Conveyances of oil and gas mineral rights.  Entities should apply the mineral property conveyance and related transactions guidance in Subtopic 932-360 (Oil and Gas-Property, Plant, and Equipment) to such transactions.

If a decrease in ownership occurs in a subsidiary that is not a business or nonprofit activity, an entity first needs to consider whether the substance of the transaction causing the decrease in ownership is addressed in other U.S. GAAP, such as transfers of financial assets, revenue recognition, exchanges of nonmonetary assets, sales of in substance real estate, or conveyances of oil and gas mineral rights, and apply that guidance as applicable. If no other guidance exists, an entity should apply the guidance in Subtopic 810-10.  The amendments in this Update are effective beginning in the first interim or annual reporting period ending on or after December 15, 2009.

In January 2010, the FASB issued the FASB Accounting Standards Update No. 2010-06 “Fair Value Measurements and Disclosures (Topic 8 20) Improving Disclosures about Fair Value Measurements”, which provides amendments to Subtopic 820-10 that require new disclosures as follows:

1.

Transfers in and out of Levels 1 and 2. A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers.

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2.

Activity in Level 3 fair value measurements. In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number).

This Update provides amendments to Subtopic 820-10 that clarify existing disclosures as follows:

1.

Level of disaggregation. A reporting entity should provide fair value measurement disclosures for each class of assets and liabilities. A class is often a subset of ass ets or liabilities within a line item in the statement of financial position. A reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities.

2.

Disclosures about inputs and valuation techniques. A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3.

This Update also includes conforming amendments to the guidance on employers' disclosures about postretirement benefit plan assets (Subtopic 715-20). The conforming amendments to Subtopic 715-20 change the termi nology from major categories of assets to classes of assets and provide a cross reference to the guidance in Subtopic 820-10 on how to determine appropriate classes to present fair value disclosures. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.

In February 2010, the FASB issued the FASB Accounting Standards Update No. 2010-09 “Subsequent Events (Topic 855) Amendments to Certain Recognition and Disclosure Requirements”, which provides amendments to Subtopic 855-10 as follows:

1.

An entity that either (a) is an SEC filer or(b) is a conduit bond obligor for conduit debt securities that are traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local or regional markets) is required to evaluate subsequent events through the date that the financial statements are issued. If an entity meets neither of those criteria, then it should evaluate subsequent events through the date the financial statements are available to be issued.

2.

An entity that is an SEC filer is not required to disclose the date through which subsequent events have been evaluated. This change allevi ates potential conflicts between Subtopic 855-10 and the SEC's requirements.

3.

The scope of the reissuance disclosure requirements is refined to include revised financial statements only. The term revised financial statements is added to the glossary of Topic 855. Revised financial statements include financial statements revised either as a result of correction of an error or retrospective application of U.S. generally accepted accounting principles.

All of the amendments in this Update are effective upon issuance of the final Update, except for the use of the issued date for conduit debt obligors. That amendment is effective for interim or annual periods ending after June 15, 2010.

In April 2010, the FASB issued the FASB Accounting Standards Update No. 2010-17 “Revenue Recognition — Milestone Method (Topic 605) Milestone Method of Revenue Recognition”, which provides guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive.

Determining whether a milestone is substantive is a matter of judgment made at the inception of the arrangement. The following criteria must be met for a milestone to be considered substantive. The consideration earned by achieving the milestone should:

1.

Be commensurate with either of the following:

a.

The vendor's performance to achieve the milestone

b.

The enhancement of the value of the item delivered as a result of a specific outcome resulting from the vendor's performance to achieve the milestone

2.

Relate solely to past pe rformance

3.

Be reasonable relative to all deliverables and payment terms in the arrangement.

A milestone should be considered substantive in its entirety. An individual milestone may not be bifurcated. An arrangement may include more than one milestone, and each milestone should be evaluated separately to determine whether the milestone is substantive. Accordingly, an arrangement may contain both substantive and nonsubstantive milestones.

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A vendor's decision to use the milestone method of revenue recognition for transactions within the scope of the amendments in this Update is a policy election. Other proportional revenue recognition methods also may be applied as long as the application of those other methods does not result in the recognition of consideration in its entirety in the period the milestone is achieved.

A vendor that is affected by the amendments in this Update is required to provide all of the following disclosures:

1.

A description of the overall arrangement

2.

A description of each milestone and related contingent consideration

3.

A determination of whether each milestone is considered substantive

4.

The factors that the entity considered in determining whether the milestone or milestones are substantive

5.

The amount of consideration recognized during the period for the milestone or milestones.

The amendments in this Update are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. If a vendor elects early adoption and the period of adoption is not the beginning of the entity's fiscal year, the entity should apply the amendments retrospectively from the beginning of the year of adoption. Additionally, a vendor electing early adoption should disclose the following information at a minimum for all previously reported interim periods in the fiscal year of adoption:

1.

Revenue

2.

Income before income taxes

3.

Net income

4.

Earnings per share

5.

The effect of the change for the captions presented.

A vendor may elect, but is not required, to adopt the amendments in this Update retrospectively for all prior periods.

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.

NOTE 2 – GOING CONCERN

As reflected in the accompanying consolidated financial statements, the Company had an accumulated deficit of $1,736,801 at September 30, 2010 and had a net loss of $922,177 and net cash used in operating activities of $404,738 for the interim period then ended, respectively.

While the Company is attempting to generate sufficient revenues, the Company’s cash position may not be sufficient to support the Company’s daily operations.  Management intends to raise additional funds by way of a public or private offering.  Management believes that the actions presently being taken to generate sufficient revenues provide the opportunity for the Company to continue as a going concern.  While the Company believes in the viability of its strategy to generate revenues and in its ability to raise additional funds, there can be no assurances to that effect.  The ability of the Company to continue as a going concern is dependent upon the Company’s ability to generate sufficient revenues.

The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

NOTE 3 – INVENTORY

Inventory at Se ptember 30, 2010 and December 31, 2009 consisted of the following:

	September 30, 2010		December 31, 2009
Raw materials	$	300,392	$	321,229
Finished goods		44,312		21,024
	$	344,704	$	342,253

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NOTE 4 – PROPERTY AND EQUIPMENT

Property and equipment, stated at cost, less accumulated depreciation at September 30, 2010 and December 31, 2009 consisted of the follo wing:

	Estimated Useful Life (Years)	September 30, 2010			December 31, 2009
Office equipment	3	$	21,556		$	5,261
Production equipment	3 to 5		28,964			15,451
			50,520			20,712
Less accu mulated depreciation			(6,792	)		(2,290	)
		$	43,728		$	18,422

NOTE 5 – NOTES RECEIVABLE - RELATED PARTY

Notes receivable – related party at September 30, 2010 and December 31, 2009 consisted of the following:

	September 30, 2010			December 31, 2009
On February 25, 2010, the Company granted a promissory note to Gary Ballen, a related party, in the amount of $12,500 with interest at 6% per annum.  The note is due and payable on September 30, 2010.		12,500			-
On June 30, 2010, the Company granted a promissory note to Gary Ballen, a related party, in the amount of $50,000 with interest at 6% per annum.  The note is due and payable on September 30, 2010.		50,000	;		-
	$	62,500		$	-	& nbsp;

NOTE 6 – NOTE PAYABLE – D&O INSURANCE

Note payable at September 30, 2010 and December 31, 2009 consisted of the following:

	&n bsp;	September 30, 2010		December 31, 2009
On November 12, 2009 the Company entered into a short term financing agreement of $18,750 for Director’s and Officer’s Insurance.  Repayment is to be paid over nine (9) months, with interest at 5.25% per annum, paid in full by August 1, 2010.			-		16,703
On August 11, 2010 the Comp any entered into a short term financing agreement of $4,796 for Product Liability Insurance.  Repayment is to be paid over ten (10) months, with interest at 9.65% per annum.			3,867		-
		$	3,867	$	16,703

NOTE 7 – SHORT-TERM CONVERTIBLE NOTE P AYABLE

On January 12, 2010, the Company entered into a 6% short-term convertible note payable of $100,000 (“Short-term Convertible Note”) with Larry Johnson (the “Payee”) maturing on December 31, 2010. The Payee has the option to convert the outstanding note and interest due into Company’s restricted common shares at $.20 per share at any time prior to December 31, 2010. In connection with the issuance of the Short-term Convertible Note, the Company granted to the Payee a warrant to purchase 500,000 common shares exercisable at $0.10 per share expiring five (5) year from the date of issuance.

The relative fair value of the warrant granted, estimated on the date of grant, was $49,200, which was recorded as a discount to the Short-term Convertible Note using the Black-Scholes option - -pricing model with the following assumptions:

- 17 -

Expected option life (year)	5.00
Expected volatility	72.67%
Risk-free interest rate	2.49%
Dividend yield	0.00%

After allocating the $49,200, portion of the proceeds to the warrant as a discount to the Short-term Convertible Note, the effective conversion price of the short-term convertible note payable was lower than the market price at the date of issuance and per calculation the remaining balance of the net proceeds was allocated to a beneficial conversion feature by crediting $50,800 to additional paid-in capital and debiting the same amount to a beneficial conversion feature. The Company is amortizing the discount and beneficial conversion feature over the term of the Short-term Convertible Note. The amortization of the discount and beneficial conversion feature amounted to $74,359 for the interim period ended September 30, 2010.

Short-term convertible note payable at September 30, 2010 and December 31, 2009 consisted of the following:

		September 30, 2010			December 31, 2009
Short-term convertible note payable
Face amount of short-term convertible note payable	;	$	100,000		$	-
Discount representing (i) the relative fair value of the warrants issued in connection with the issuance of the shor t-term convertible note and (ii) the beneficial conversion feature			(100,000	)		-
Accumulated amortization of discount			74,359			-
		$	74,359		$	-

NOTE 8 – NOTES PAYABLE - RELATED PARTIES

On December 30, 2009, the Company entered into two (2) 6% notes payable of $25,000 each, or $50,000 in aggregate (“Notes - Related Parties”) with (i) Marvin Hausman, M.D., Chief Executive Officer, Director and Stockholder of the Company and (ii) Philip Sobol, a Director of the Company (the “Payees”) maturing on December 31, 2011. Notes – Related Parties, at the discretion of the Payees, is due and payable in the event that the Company completes a capital fund raising of any amount greater than $250,000.  If the Company complet es such a capital fund raising, the Payees shall have 30 days from the close of the fundraising to to convert their notes to equity in the form of restricted common stock.  The Payees have the option to convert the outstanding notes and interest due into Company restricted common shares at $.20 per share at any time after the fundraising but prior to December 31, 2011. In connection with the issuance of Notes - Related Parties, the Company granted the Payees warrants to purchase 250,000 common shares exercisable at $0.10 per share expiring five (5) year from the date of issuance.

The relative fair value of these warrants granted, estimated on the date of grant, was $22,200, which was originally recorded as a discount to notes payable – related parties, using the Black-Scholes option-pricing model with the following weighted-average assumptions:

Expected option life (year)	5.00
Expected volatility	80.52%
Risk-free interest rate	2.69%
Dividend yield	0.00%

After allocating the $22,200, portion of the proceeds to the warrants as a discount to the Short-term Convertible Note, the effective conversion price of the notes payable – related parties was lower than the m arket price at the date of issuance and therefore the remaining balance of $27,800 of the net proceeds has been assigned as a beneficial conversion feature by crediting $27,800 to additional paid-in capital and debiting the same amount to the discount to the notes payable – related parties.  The Company is amortizing the discount and beneficial conversion feature over the term of the Notes payable – related parties. The amortization of the discount and beneficial conversion feature amounted to $18,750 for the interim period ended September 30, 2010.

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Notes payable – related parties at Septembe r 30, 2010 and December 31, 2009 consisted of the following:

	September 30, 2010				December 31, 2009
Notes payable – related parties
				&n bsp;
Face amount of the Convertible note payable – related parties, originated on December 30, 2009, with interest at 6.00% per annum, with principal and interest due December 31, 2011.	$	50,000			$	50,000
Discount representing (i) th e relative fair value of the warrants issued of $22,200 and (ii) the beneficial conversion feature of $27,800		(50,000	)			(50,000)
Accumulated amortization of discount		18,750				-
	$	18,750			$	-

NOTE 9 – CONVERTIBLE NOTES PAYABLE

(i) February 18, 2010 Mark Wolf Note

On February 18, 2010, the Company entered into two 6% convertible notes payable of $150,000 in aggregate (“Convertible Note”) with Mark Wolf (the “Payee”) maturing on December 31, 2011. The Payee has the option to convert the outstanding notes and interest due into Company restricted common shares at $.20 per share at any time prior to December 31, 2011.  In connection with the issuance of Convertible Notes, the Company granted to the Payee a warrant to purchase 750,000 common shares exercisable at $0.10 per share expiring five (5) year from the date of issuance.

The relative fair value of these warrants granted, estimated on the date of grant, was $74,550, which was recorded as a discount to the convertible notes payable, using the Black-Scholes option-pricing model with the following weighted-average assumptions:

Expected option life (year)	5.00
Expected volatility	78.08%
Risk-free interest rate	2.46%
Dividend yield	0.00%

After allocating the $74,550 portion of the proceeds to the warrants as a discount to the Convertible Note, the effective conversion price of the convertible notes payable was lower than the market price at the date of issuance and per calculation the remaining balance of the net proceeds was allocated to a beneficial conversion feature by crediting $75,450 to additional paid-in capital and debited the same amount to the beneficial conversion feature..  The Company is amortizing the discount and beneficial conversion feature over the term of the Convertible Note. The amortization of the discount and beneficial conversion feature amounted to $50,000 for the interim period ended September 30, 2010.

 (ii) March 26, 2010 Delta Group Note

On March 26, 2010, the Company entered into a 5% convertible note payable of $300,000 (“Convertible Note”) with Delta Group Investments Limited (the “Payee”) maturing on March 26, 2013. The Payee has the option to convert the outstanding note into Company restricted common shares at $.25 per share at any time prior to payment in full of the principal balance of the Convertible Note. The Convertible Note is callable at the option of the Company at the rate of $.25 per share, if the stock closes at $1.00 per share or higher for thirty (30) consecutive trading days. In connection with the issuance of the Convertible Note, the Company granted the Payee a warrant to purchase 600,000 common shares exercisable at $0.15 per share expiring three (3) years from the date of issuance.

The relative fair value of these warrants granted, estimated on the date of grant, was $68,700, which was recorded as a discount to the convertible note payable, using the Black-Scholes option-pricing model with the following weighted-average assumptions:

Expected option life (year)	3.00
Expected volatility	67.63%
Risk-free interest rate	1.64%
Dividend yield	0.00%

- 19 -

After allocating the $68,700, portion of the proceeds to the warrants as a discount to the Convertible Note, an additional $68,700 was allocated to a beneficial conversion feature by crediting additional $68,700 to additional paid-in capital and debiting the same amount to the beneficial conversion feature.  The Company is amortizing the discount and beneficial conversion feature over the term of the Convertible Note. The amortization of the discount and beneficial conversion feature amounted to $22,900 for the interim period ended September 30, 2010.

Convertible notes payable at September 30, 2010 and December 31, 2009 consisted of the following:

	September 30, 2010			December 31, 2009
Convertible notes payable
			&n bsp;
Face amount of convertible notes payable	$	450,000		$	-
Discount representing (i) the relative fair value of the warrants issued and (ii) the beneficial conversion features		(287,400	)		-
Accumulated amortization of discount on convertible notes payable		72,900			-
	$	235,500		$	-

NOTE 10 – STOCKHOLDERS’ EQUITY

Common stock

(i) Sale of common stock - 2009 private placement

The Company opened a private placement offering to sell to selected offerees a minimum of 1,200,000 Units and a maximum of 3,000,000 Units, at an offering price of $0.50 per Unit.  Each Unit is comprised of two shares of the Company's Common Stock, $0.001 par value, and two, three year callable Warrants - an "A" Warrant to purchase one share of Common Stock exercisable at $0.75 per share and a "B" Warrant to purchase one share of Common Stock exercisable at $1.00 per share.  This private placement offering closed on June 9, 2009.

On February 5, 2009, 300,000 units, or 600,000 shares of Common Stock, were sold under the private placement offering to one investor for $150,000.

On March 31, 2009, 720 shares of Common Stock were issued as a consulting fee and valued at $180 based on the terms of the consulting agreement.

On June 9, 2009, 819,000 units, or 1,638,000 shares of Common Stock, were sold under the private placement offering to several investo rs for $409,500.

On September 22, 2009, 100,000 shares of Common Stock were issued for $25,000 cash to one investor for $0.25 a share.

(ii) Increase of common shares authorized to 150 millions

On January 29, 2010 a Certificate of Amendment to Articles of Incorporation of Total Nutraceutical Solutions, Inc. (“TNS”) was filed with the Secretary of State of Nevada. On January 4, 2010, a majority of the stockholders of TNS, holding 54% of the outstanding shares of TNS, pursuant to a written consent in lieu of a special meeting, adopted amendments to the Articles of Incorporation of the corporation.  The amendments involved the change of the name of the corporation from Total Nutraceutic al Solutions to Total Nutraceutical Solutions, Inc. and an increase in the number of shares of common stock authorized to be issued from 70 million shares to 150 million shares.

(iii) Issuance of common shares for services

On August 26, 2010, the Company entered into a Consulting Agreement with Keith E. Manfred (”Consultant”).  Under this agreement the Consultant will provide certain marketing services in exchange for 4,000,000 shares of the Company’s common stock valued at $420,000 at the date of grant, the fair value of service to be rendered which is more reliably measurable.  

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The stock will be issued in traunches with 2,000,000 shares issued at signing and the remaining shares to be issued on a quarterly basis over the second year of the agreement.

Stock incentive plan

On September 17, 2010, the Board adopted the Plan effective October 21, 2010 upon approval by the stockholders for the purpose of promoting the long-term success of the Company and the creation of stockholder value by (a) encouraging Employees, Outside Directors, Consultants, Independent Contractors and Advisors to focus on critical long-range objectives, (b) encouraging the attraction and retention of Employees, Outside Directors, Consultants, Independent Contractors and Advi sors with exceptional qualifications and (c) linking Employees, Outside Directors, Consultants, Independent Contractors and Advisors directly to stockholder interests through increased stock ownership.  The Plan seeks to achieve this purpose by providing for Awards in the form of Restricted Shares or Options (which may constitute incentive stock options or nonstatutory stock options). The Plan shall be administered by the Board of Directors or a committee of the Board of Directors consisting of two or more directors.

Common Shares issuable pursuant to the Plan may be authorized but unissued shares or treasury shares.  The aggregate number of Options and Restricted Shares awarded under the Plan shall not exceed (a) 8 million Common Shares plus (b) Annual Increase in Shares of 300,000 as of January 1 of each year, commencing with the year 2012.  If Options are forfeited or terminate for any other reason before being exercised, then the corresponding Common Shares shall again become available for the grant of Options or Restricted Shares under the Plan.  If Restricted Shares or Common Shares issued upon the exercise of Options are forfeited, then such Common Shares shall again become available for the grant of nonstatutory stock options (“NSOs”) and Restricted Shares under the Plan.  The aggregate number of Common Shares that may be issued under the Plan upon the exercise of Inceptive Stock Options (“ISOs”) shall not be increased when Restricted Shares or other Common Shares are forfeited.

Each grant of an Option under the Plan shall be evidenced by a Stock Option Agreement between the Optionee and the Company.  Such Option shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provision s of the various Stock Option Agreements entered into under the Plan need not be identical. Options may be granted in consideration of a reduction in the Optionee’s other compensation.  Options granted to any Optionee in a single fiscal year of the Company shall not cover more than 500,000 Common Shares.  The Exercise Price under an ISO shall in no event be less than 100% of the Fair Market Value of a Common Share on the date of grant and the Exercise Price under an NSO shall in no event be less than 85% of the Fair Market Value of a Common Share on the date of grant. In the case of an NSO, a Stock Option Agreement may specify an Exercise Price that varies in accordance with a predetermined formula while the NSO is outstanding.

NOTE 11 – RELATED PARTY TRANSACTIONS

Consulting services from Chairman and CEO

Consulting services provided by and compensation to the Chairman and CEO were $30,000 and $90,000 and $0 and $0 for the three months and nine months ended September 30, 2010 and 2009, respectively.

Receivables from and paybles  to Related Parties

The Company transferred the $300,000 borrowed from Delta Group Investments Limited (see Note 5) to the Direct Marketing Affiliates Program.  

The Company loaned $62,500 to one of the principals of American Charter Marketing, Gary Ballen.  The funds were transferred from the Direct Marketing Affiliates Progra m.

The Company borrowed $20,000 from the Direct Marketing Affiliates Program during the quarter ended September 30, 2010.

NOTE 12 – COMMITMENTS AND CONTINGENCIES

Profit sharing agreement

On March 26, 2010 the Company entered into a Profit Sharing Agreement or Direct Marketing Affiliates Project (DMAP) with American Charter & Marketing LLC (ACM) and Delta Group Investments Limited (DGI), with the primary focus of undertaking a direct mail marketing campaign designed to sell Nutraceutical products developed and manufactured by the Company.  The parties agree that the Company will act as Managing Affiliate.  DGI will provide $300,000 in the form of a loan, as starting capital for the project (see Note 5).   The net profits of the DMAP project will be shared with 25% going to the

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Company, 25% to DGI, 25% to ACM and 25% as a return on the initial loan.  The DMAP project is to be in effect for three (3) years from date of execution.  The DMAP agreement contains an option to convert profits into shares of restricted common stock.  

Consulting agreement

On August 26, 2010, the Company entered into a Consulting Agreement with Keith E. Manfred (”Consultant”).  Under this agreement the Consultant will provide certain marketing services in exchange for 4,000,000 shares of the Company’s common stock, valued at $420,000 at the date of grant, the fair value of service to be rendered which is more reliably measurable.  The stock will be issued in traunches with 2,000,000 shares issued at signing and the remaining shares to be issued on a quarterly basis over the second year of the agreement.

NOTE 13 – SUBSEQUENT EVENTS

The Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were issued to determine if they must be reported.  The Management of the Company determined that there were no reportable subsequent events to be disclosed.

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

Forward-Looking Information

We may from time to time make written or oral "forward-looking statements" including statements contained in this report and in other communications, which are made in good faith by us pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements include statements of    our plans, objectives, expectations, estimates and intentions, which are subject to change based on various important factors (some of which are beyond the Company's control).  The following factors, in addition to others not listed, could cause our actual results to differ materially from those expressed in forward looking statements: the strength of the domestic and local economies in which the Company conducts operations, the impact of current uncertainties in global economic conditions and the ongoing financial crisis affecting the domestic and foreign banking system and financial markets, including the impact on our suppliers and customers, changes in client needs and consumer spending habits, the impact of competition and technological change on our company, our ability to manage its growth effectively, including its ability to successfully integrate any business which it might acquire, and currency fluctuations. All forward-looking statements in this report are based upon information available to us on the date of this report.  We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.

The following discussion and analysis should be read in conjunction with our financial statements and the notes thereto appearing in Part I, Item 1.

Overview of Current Operations

Total Nutraceutical Solutions is an emerging nutraceutical company with a focus on discovering, formulating and marketing products composed primarily of organic natural mushrooms that contain bioactive nutrients for potenti al health benefits.  Mushroom dietary supplements have the nutritional potential to provide multiple health benefits for humans, including providing antioxidants, reducing inflammation, nutritionally supporting cellular and immune system function, promoting healthy joints, increasing stamina, and reducing stress and anxiety.  We develop production and analytic technologies for food and nutritional supplements composed primarily of mushrooms.  In addition to preventative healthcare formulations and nutritional approaches to a wide variety of human conditions and illnesses, we also develop and acquire nutritional tools and products in the fields of animal husbandry and livestock feeds.

We have developed mushroom based nutraceutical dietary supplement products that are made entirely of naturally occurring dietary substances which are manufactured under contract by a third party, Columbia Nutritio nal Services, Inc..  We currently market three  natural organic nutraceutical mushroom dietary supplement products, ImmuSANO and GlucoSANO for human consumption and EquiSANO for the equine market.  These naturally occurring dietary substances have not been chemically altered, and we believe these products have both health benefits and mass appeal to people wanting natural and non-toxic nutritional-based healthcare.  During the quarter ending June 30, 2010 we initiated sales of a new nutricosmetic product, Gröh which has been designed to nutritionally support  hair follicles and  nail beds.

We market our products directly to the consumer utilizing network marketing programs, including our Direct Marketing Affiliates Project described below, direct mail order, internet marketing, and commission sales people.  We sell directly to consumers our own proprietary formulations of over the counter mushroom based nutraceutical and nutricosmetic products produced by an outside contract manufacturer.

In March 2010 we entered into a Profit Sharing Agreement with American Charter Marketing , Inc. (ACM) and Delta Group Investments Limited under which we agreed to form an association referred to as the Direct Marketing Affiliates Project (DMAP).  Pursuant to the agreement the parties agree to work together to undertake a direct mail campaign designed to sell certain TNS nutraceutical products for a period of three years, with the day to day management and control of business operations of the association being vested in TNS as the managing affiliate.

One of the affiliates, Delta Group Investments Limited made an initial contribution to the association in the form of a $300,000 loan wit h interest at 5% per annum.  This loan shall be repaid by the association through allocation of 25% of net profits from the marketing and sale of new TNS nutraceutical products going to repayment of the loan and 25% of net profits going to each affiliate of the association.  Once Delta Group has been repaid the loan with interest, the percentage of allocation shall be shifted so that TNS, ACM and Delta Group shall receive equal shares of net profits. Once Delta Group has been repaid the loan with interest and in addition has received $300,000 in net profit allocations, the percentage of allocation shall be shifted so that TNS and ACM shall each receive 45% of the net profits and Delta Group shall receive the remaining 10% of net profits.  Allocation of net profits shall be done on a quarterly basis by the managing affiliate, TNS.  Delta Group and ACM have the

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option to convert their net profit allocations into shares of common stock of TNS and Delta Group has the option at any time to convert any portion of the loan principal and interest into TNS shares of common stock at $0.25 per share.

The marketing association can be terminated upon the expiration of the three year term, upon the election to terminate by all of the affiliates or upon 90 day prior notice from any of the affiliates.  Upon termination the property and assets of the association and such cash shall be allocated first to the payment of creditors of the association, for the reserves for contingent or unforeseen liabilities of the association as deemed necessary by TNS as the managing a ffiliate, then to the repayment of affiliates to the extent of loans made to the association, and finally to the payment of affiliates in respect of their interest in the capital and the profits and losses of the association.  If there are not sufficient funds at the time of the liquidation to repay in full the $300,000 loan from Delta Group plus accrued interest, TNS will be liable for the payment of any shortfall.

Results of Operations for the quarter ended September 30, 2010

Our financial statements are now consolidated to include the financial results of the DMAP or Direct Marketing Affiliates Project described above.  During the nine months ended September 30, 2010, we had a net loss of $922,177 versus a $424,419   net loss for the same period last year.  The increase in the net loss was attri butable to an increase in marketing and promotional expenses, and consulting fees as we continue to grow our business. Our total operating expenses increased from $442,780 for the nine months ended September 30, 2009 to $911,389 for the nine months ended September 30, 2010.  Total liabilities increased from $138,050 on December 31, 2009 to $626,954 on September 30, 2010.  This increase was primarily due to the fact that we incurred debts in an aggregate principal amount of $550,000 at various rates of interest during the quarter ended March 31, 2010.  See the Liquidity and Capital Resources section below.

Revenues

We generated $96,705 in revenues for the three months ended September 30, 2010 as compared to $39,863 in revenues for the same period last year.  Our cost of goods sold was $39,644 for the qua rter resulting in a gross profit of $57,061 as compared to a gross profit of $14,557for the quarter ended September 30, 2009.  

Going Concern

Our independent auditors have included an explanatory paragraph in their report on the accompanying financial statements regarding concerns about our ability to continue as a going concern.  Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.

Expected purchase or sale of plant and significant equipment

We do not anticipate the purchase or sale of any plant or significant equipment; as such item s are not required by us at this time.

Significant changes in the number of employees

As of September 30, 2010, we did not have any employees.  Our Chief Executive Officer, Marvin S. Hausman, M.D. and our Vice President for Sales and Marketing, Devin Andres each provides employee like services pursuant to consulting arrangements.  As our operations expand, we anticipate the need to hire employees however, the exact number of employees that would be hired is not quantifiable at this time.

Liquidity and Capital Resources

As of September 30, 2010 we had cash of $61,047 compared to cash of $109,655 as of June 30, 2010 and $48,141 a s of December 31, 2009.  We incurred debts in an aggregate principal amount of $550,000 at various rates of interest during the quarter ended March 31, 2010 of which $150,000 plus 6% interest matures on December 31, 2010.  The rest of the debt matures as follows:  $100,000 plus interest at 6% per annum matures on December 31, 2011 and $300,000 plus interest at 5% per annum matures in March 2013.  The proceeds from this $300,000 convertible promissory note with Delta Group was transferred to the Direct Marketing Affiliates Project and is subject to the Profit Sharing Agreement described above under which the loan shall be repaid on a quarterly basis from net profits generated under the agreement, if any.  The convertible promissory note matures in March 2013.  If there are not sufficient funds at the time of the liquidation of the Direct Marketing Affiliates Project to repay in full the $300,000 loan from Delta Group plus accrued interest, TNS will be liable for the payment of an y shortfall.  TNS loaned $50,000 at 6% interest per annum on January 15, 2010 to Gary Ballen and American Charter Marketing, Inc., one of the affiliates of the Direct Marketing Affiliates Project, which promissory note matures on September 30, 2010.  On February 25, 2010, TNS also loaned an additional $12,500 to Gary Ballen and American Charter Marketing, Inc also at interest of 6% per annum with the promissory note maturing on June 30, 2010.  To date these promissory notes have not been repaid, and management is currently negotiating terms for the repayment of the notes.  Given that our CEO Dr. Hausman has been accruing his monthly consulting fee

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sin ce June 2010 and other consultants to the company are similarly accruing their consulting fees, allowing us to conserve our operating cash.  Management believes it has sufficient funds to remain operational through January 2011.

We anticipate that we will continue to generate losses during the remainder of this fiscal year and therefore, unless we are able to raise capital through equity private placements we may be unable to continue operations in the future.  Additional working capital may be sought through notes payable to banks or related parties (officers, directors or stockholders), or from other available funding sources at market rates of interest, or a combination of these.  The ability to raise necessary financing will depend on many factors, including the nature and prospects of any business to be acquired and the economic and market conditions prevailing at the time financing i s sought.  

There can be no assurance that additional debt or equity capital will be available to us.  We currently have no agreements, arrangements, or understandings with any person to obtain funds through bank loans, lines of credit, or any other sources.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results or operations, liquidity, capital expenditures or capital resources that is material to investors.

Critical Accounting Policies and Estim ates

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

New Accounting Standards

Please see Note 2 of the Notes to Financial Statements in this quarterly report concerning new accounting standards.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Not required

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this Quarterly Report on Form 10-Q, an evaluation was carried out by our management, with the participation of our Chief Executive Officer who is also our principal financial and accounting officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of September 30, 2010.  Based on that evaluation, our principal executive officer and principal financial officer concluded that the material weaknesses identified in our management report on internal controls and procedures contained in o ur Form 10-K, Item 9A filed on April 15, 2010 still exist, and therefore our disclosure controls and procedures were not effective as of September 30, 2010.

Changes in Internal Control Over Financial Reporting

As of the end of the quarter ended June 30, 2010, there have been no changes in internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended June 30, 2010, that materially affected, or are reasonably likely to materially affect, our company’s internal control over financial reporting.

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Part II. OTHER INFORMATION

Item 1A.  Risk Factors

See Risk Factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2009, and the discussion above in Part I, Item 2, under " Liquidity and Capital Resources.”

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

None.  

Item 3.  Defaults Upon Senior Securities

None.

Item 4.  Submission of Matters to a Vote of Security Holders

On October 21, 2010 the Annual Meeting of Stockholders of TNS was held at its executive offices in Stevenson, Washington.  Set forth below is a summary of each matter voted upon at the meeting and the number of votes cast for, against, withheld or abstained.  All three proposals passed.

Proposal #1: The election of Marvin Hausman, M.D, Elliot Shelton, Esq. and Philip Sobol, M.D to ser ve on the Board of Directors:

Nominee	Votes For Nominees	A bstained
Marvin Hausman, M.D.	32,752,108	93,270
Elliot Shelton, Esq.	32,832,758	12,620
Philip Sobol, M.D.	32,831,658	13,720

Proposal #2: Ratification of the adoption of the Total Nutraceutical Solutions, Inc. 2010 Stock Incentive Plan.

Total Votes For	Total Votes Against	Abstained
32,230.233	14,720	600,425

Proposal #3: Ratification of the appointment of Li & Company, P.C. as our independent auditors for the year ending December 31, 2010:

Total Votes For	Total Votes Against	Abstained
32,838,208	7,120	50

Item 5.  Other Information

None.

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Item 6.  Exhibits 

Exhibit Number	Description of Exhibit	Filed Herewith	Form	Exhibit	Filing Date
3.1	Amended and Restated  Articles of Incorporation		8-K	3.1	10/29/2010
3.2	Bylaws		SB-2	3.2	08/06/2007
3.3	Amended Articles of Merger Incorporation as currently in effect	& nbsp;	8-K	3.3	10/13/2008
10.1	Exclusive Option Agreement dated May 1, 2006, between The Penn State Research Foundation and Northwest Medical Research Inc.		8-K	10.1	09/04/2008
10.2	Assignment Agreement to the Option Agreement, dated July 31, 2008, among The Penn State Research Foundation, Northwest Medical Research Inc. and Generic Marketing Services, Inc.		8-K	10.2	09/04/2008
10.3	Assignment and Assumption Agreement, dated July 31, 2008, between Northwest Medical Research Inc. and Generic Marketing Services, Inc.		8-K	10.3	09/04/2008
10.4	Form of Common Stock and Warrant Purchase Agreement		8-K	10.1	06/12/2009
10.5	Form of Securities Purchase Agreement		8-K	10.1	09/21/2009
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.	X
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a), promulgated under the Securities and Exchange Act of 1934, as amended.	X
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).	X
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).	X

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.

	Total Nutraceutical Solutions, Inc.
November  22, 2010	By:	/s/ Marvin Hausman, M.D.
		Marvin Hausman, M.D. Chief Executive Officer (Principal Executive Officer and Acting Principal Financial and Accounting Officer)

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