UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended July 31, 2008
[ ] 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 0-52864
Total Nutraceutical Solutions
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(Exact name of registrant as specified in its charter)
Nevada 26-0561199
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(State of incorporation) (I.R.S. Employer ID No.)
2811 Reidville Road, Suite 23, Spartanburg, SC 29301
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(Address of principal executive offices)(Zip Code)
Issuer's telephone number, including area code: (864) 316-2909
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. [ ] Yes [X] No
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. [ ] Yes [X] No
Indicate by checkmark whether the issuer (1) 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 (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 checkmark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
Indicate by checkmark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
[ ] Large accelerated filer [ ] Accelerated filer
[ ] Non-accelerated filer [X] Smaller reporting company
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes[X] No [ ]
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common equity,
as of the last business day of the registrant's most recently completed fiscal
year.:
The aggregate market value of the issuer's common stock held by non-affiliates
of the registrant as of October 8, 2008, was approximately $1,942,375, based
on $0.10, the price at which the registrant's common stock was last sold on
that date.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date:
As of October 27, 2008, there were 55,923,750 shares of the issuers Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
INDEX
Title Page
ITEM 1. BUSINESS 5
ITEM 2. PROPERTIES 21
ITEM 3. LEGAL PROCEEDINGS 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 21
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 23
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON 30
ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES 30
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 33
ITEM 11. EXECUTIVE COMPENSATION 36
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, 38
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 39
AND DIRECTOR INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 40
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 40
2
FORWARD-LOOKING STATEMENTS
This document contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. All statements other than
statements of historical fact are "forward-looking statements" for purposes
of federal and state securities laws, including, but not limited to, any
projections of earnings, revenue or other financial items; any statements of
the plans, strategies and objections of management for future operations; any
statements concerning proposed new services or developments; any statements
regarding future economic conditions or performance; any statements or
belief; and any statements of assumptions underlying any of the foregoing.
Forward-looking statements may include the words "may," "could," "estimate,"
"intend," "continue," "believe," "expect" or "anticipate" or other similar
words. These forward-looking statements present our estimates and assumptions
only as of the date of this report. Accordingly, readers are cautioned not to
place undue reliance on forward-looking statements, which speak only as of
the dates on which they are made. We do not undertake to update forward-
looking statements to reflect the impact of circumstances or events that
arise after the dates they are made. You should, however, consult further
disclosures we make in future filings of our Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
Although we believe that the expectations reflected in any of our forward-
looking statements are reasonable, actual results could differ materially
from those projected or assumed in any of our forward-looking statements. Our
future financial condition and results of operations, as well as any forward-
looking statements, are subject to change and inherent risks and
uncertainties. The factors impacting these risks and uncertainties include,
but are not limited to:
o inability to raise additional financing for working capital;
o inability to identify nutraceutical products that fit into our
organization;
o deterioration in general or regional economic, market and political
conditions;
o the fact that our accounting policies and methods are fundamental to how
we report our financial condition and results of operations, and they may
require management to make estimates about matters that are inherently
uncertain;
o adverse state or federal legislation or regulation that increases the
costs of compliance, or adverse findings by a regulator with respect to
existing operations;
o changes in U.S. GAAP or in the legal, regulatory and legislative
environments in the markets in which we operate;
3
o inability to efficiently manage our operations;
o inability to achieve future operating results;
o our ability to recruit and hire key employees;
o the inability of management to effectively implement our strategies and
business plans; and
o the other risks and uncertainties detailed in this report.
In this form 10-K references to "Total Nutraceutical Solutions", "the
Company", "we," "us," and "our" refer to Total Nutraceutical Solutions.
AVAILABLE INFORMATION
We file annual, quarterly and special reports and other information with the
SEC. You can read these SEC filings and reports over the Internet at the
SEC's website at www.sec.gov. You can also obtain copies of the documents at
prescribed rates by writing to the Public Reference Section of the SEC at 100
F Street, NE, Washington, DC 20549 on official business days between the
hours of 10:00 am and 3:00 pm. Please call the SEC at (800) SEC-0330 for
further information on the operations of the public reference facilities. We
will provide a copy of our annual report to security holders, including
audited financial statements, at no charge upon receipt to of a written
request to us at Total Nutraceutical Solutions, 2811 Reidville Road,
Suite 23, Spartanburg, SC 29301.
4
PART I
ITEM 1. BUSINESS
History and Organization
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The Company was organized July 19, 2007 (Date of Inception) under the laws
of the State of Nevada, as Generic Marketing Services, Inc. ("Generic
Marketing Services"). The Company was incorporated as a subsidiary of Basic
Services, Inc., ("Basic Services"), a Nevada corporation.
Basic Services has been engaged in the development of a generic
pharmaceutical products, its management decided to focus its attention on
generic product development, and spin off its marketing segment. Basic
Services formed a subsidiary, which solely focused on marketing products, as
compared to developing products. On July 31, 2007, Basic Services decided to
spin off its subsidiary.
On October 8, 2008, the Company filed amended Articles with the Secretary of
State of the State of Nevada to change its corporate name to Total
Nutraceutical Solutions.
Our Business
- ------------
We are a developmental stage company which plans to create and execute sales
and marketing programs with the goal of demonstrating our ability to maximize
our sales performance for nutraceutical products. Management is currently
working on its own formulations to produce, manufacture and market a line of
over-the-counter products, specifically nutraceutical products. Management
defines nutraceutical as "a food or naturally occurring food supplement
thought to have a beneficial effect on human and/or animal health." The
Company had not developed nor produced any products at the close of its
fiscal year. Emphasis has been placed on raising sufficient capital to
develop these products. On October 8, 2008, the Company closed a private
offering whereby the Company raised $505,000 in exchange for 5,050,000
unregistered shares of its common stock. These funds will be used to develop
and market nutraceutical products.
Business Strategy
- -----------------
We have had limited nutraceutical business activities. We are a development
stage entity in the process of establishing a business engaged in the
contract manufacture, distribution, and sale of nutraceutical products that
are made entirely of naturally occurring dietary substances. 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. We anticipate that the
company will sell directly to consumers products that have been designed by
the company and produced by outside contract manufacturers.
5
Our nutraceutical business activities to date have been minimal and have
included the acquisition of certain intellectual property pursuant to
research agreements in association with Pennsylvania State University. These
research endeavors resulted in the filing of U.S. Provisional Patent
Application No. 60/782,204, entitled "Identification of Selenoergothioneine
as a Natural Organic Form of Selenium from Cultivated Mushrooms." We
purchased an option assignment to license from Pennsylvania State University
the technologies associated with this intellectual property. We view this
intellectual property as one of the cornerstones to our business.
Marketing Strategy
- ------------------
We believe our potential for growth involves the development of nutraceutical
product(s) that can be marketed and sold through physicians, retail channels
in North America and through distributors internationally in addition to
wholesalers and multi-level marketing groups. Retail channels would include
independent and chain health food stores, pharmacies, internet sales, grocery
and drug chains and other direct to consumer retailers.
Brand Awareness
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The market for nutraceuticals is highly competitive, with many well-known
brands. Our ability to compete effectively and generate revenue will be
based upon our ability to differentiate awareness of our products from those
of our competitors. However, advertising and packaging and labeling of such
products will be limited by various regulations. Our success will be
dependent upon our ability to convey this message to consumers.
The nutraceutical industry is subject to rapid change. New products are
constantly introduced to the market. Our ability to remain competitive
depends on our ability to develop and manufacture new products in a timely
and cost effective manner, to accurately predict market transitions, and to
effectively market our products. Our future financial results will depend to
a great extent on the successful introduction of several new products. We
cannot be certain that we will be successful in selecting, developing,
contract manufacturing and marketing new products.
The success of new product introductions depends on various factors,
including, but not limited to the following:
o proper new product selection;
o availability of raw materials;
o pricing of raw materials;
o timely delivery of new products;
o regulatory allowance of the products;
o successful sales and marketing efforts; and
o customer acceptance of new products.
6
We face challenges in developing new products, primarily with funding
development costs and diversion of management time. On a regular basis, we
will evaluate opportunities to develop new products through product line
extensions and product modifications. There is no assurance that we will
successfully develop product line extensions or integrate newly developed
products into our business. In addition, there are no assurances that newly
developed products may not contribute favorably to our operations and
financial condition. Our failure to develop and introduce new products on a
timely basis could adversely affect our future operating results.
Industry
- --------
The nutritional supplements industry is intensely competitive. It includes
companies that manufacture and distribute products which are generally
intended to enhance the body's performance as well as to enhance well being.
Nutritional supplements include vitamins, minerals, dietary supplements,
herbs, botanicals and compounds derived therefrom. Opportunities in the
nutritional supplements industry were enhanced by the enactment of the
Dietary Supplement Health and Education Act of 1994 ("DSHEA"). Under DSHEA,
vendors of dietary supplements are now able to educate consumers regarding
the effects of certain component ingredients. However, they are subject to
many regulations regarding labeling and advertising of such products. See
"Government Regulation" below.
Total Nutraceutical Solutions Funding Requirements
- --------------------------------------------------
Total Nutraceutical Solutions has recently completed its initial round of
funding to capitalize the operations of the Company.
On October 8, 2008, Total Nutraceutical Solutions issued 5,050,000
unregistered shares of its common stock, par value $0.001, from its treasury
to thirteen individuals in exchange for $505,000 cash. These funds will be
used towards the Company operations, specifically the development and
production of nutraceutical product(s) to market.
Future funding could result in potentially dilutive issuances of equity
securities, the incurrence of debt, contingent liabilities and/or
amortization expenses related to goodwill and other intangible assets, which
could materially adversely affect the Company's business, results of
operations and financial condition. Any future acquisitions of other
businesses, technologies, services or product(s) might require the Company to
obtain additional equity or debt financing, which might not be available on
terms favorable to the Company, or at all, and such financing, if available,
might be dilutive.
7
Competition
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The market for nutraceuticals is highly competitive. This market includes
manufacturers, distributors and physicians. Numerous manufacturers and
distributors will compete with for customers throughout the United States,
Canada and internationally in the packaged nutritional supplement industry
selling products to retailers such as mass merchandisers, drug store chains,
independent pharmacies and health food stores. Most all of our competitors
are substantially larger and more experienced than us and have longer
operating histories, and have materially greater financial and other
resources than us. We may not be able to successfully compete with them in
the marketplace.
The principal competition in the health food store distribution channel that
we will face comes from a limited number of large nationally known
manufacturers and many smaller manufacturers of dietary supplements. Some of
the main competitors include, but are not limited to, Beyond a Century, Dr.
Whittaker, Unigen Pharma, Dr's Best, Metagenics, Twin Labs, Herbalife,
Nutrilite, and Isagenix. We also face competition in the health food store
distribution channels from private label dietary supplements offered by
health and natural food store chains. In addition, we anticipate that there
will be competition from sellers that utilize internet commerce.
The market is highly sensitive to the introduction of new products. As a
result, in order to be competitive, we will need to successfully introduce
new products that are accepted by our future customers.
We also face competition form many large drug companies. Many of these drug
companies are substantially larger and more experienced than us and, have
longer operating histories, and have materially greater financial and other
resources than us. These drug companies also have substantially greater
political influence and regulatory support for the use of their products.
Patent, Trademark, License and Franchise Restrictions and Contractual
Obligations and Concessions
- ----------------------------------------------------------------------
We regard our patents, trademarks, copyrights, domain names, trade dress,
trade secrets, proprietary technologies, and similar intellectual property as
important to our success, and we rely on patent, trademark and copyright law,
trade-secret protection, and confidentiality and/or license agreements with
our employees, customers, partners, suppliers and others to protect our
proprietary rights.
8
Research and Development Activities and Costs
- ---------------------------------------------
The Company's new CEO and Chairman of the Board, Marvin S. Hausman, M.D.,
beginning in 2006, developed certain intellectual property pursuant to
research agreements dated May 1, 2006 and May 20, 2006 in association with
Pennsylvania State University. These research endeavors resulted in the
filing of U.S. Provisional Patent Application No. 60/782,204, entitled
"Identification of Selenoergothioneine as a Natural Organic Form of Selenium
from Cultivated Mushrooms." On September 4, 2008, the company acquired from
Northwest Medical Research Partners Inc., which is controlled by Dr. Hausman,
the newly appointed director and CEO of the Company, in exchange for
3,500,000 shares of common unregistered restricted stock, an Assignment and
Assumption Agreement, effective July 31, 2008, pursuant to which the Company
has assumed the obligations of NW Research Partners to maintain the patent
prosecution and perform preclinical and clinical research associated with the
intellectual property and has an option to license from Pennsylvania State
University the technologies associated with the intellectual property.
Government Regulation
- ---------------------
In both the United States and foreign jurisdictions, we will be subject to
compliance with laws, governmental regulations, administrative
determinations, court decisions and similar constraints. Although the
products we plan to produce and distribute are not deemed to be drugs, they
are deemed to be dietary supplements and therefore are subject to all
regulations regarding products ingested by consumers and dietary supplements.
Such laws, regulations and other constraints exist at the federal, state and
local levels in the United States and at all levels of government in foreign
jurisdictions. These regulations include constraints pertaining to (i) the
manufacturing, processing, formulating, packaging, labeling, distributing and
selling (ii) advertising of products and product claims (iii) transfer
pricing, and (iv) method of use.
In the United States, the formulation, manufacturing, packaging, storing,
labeling, advertising, distribution and sale of products are subject to
regulation by various governmental agencies, which include, among others (i)
the Food and Drug Administration ("FDA"), (ii) the Federal Trade Commission
("FTC"), and (iii) the Consumer product Safety Commission. The most active
regulation has been administered by the Food and Drug Administration, which
regulates the formulation, manufacture and labeling of products pursuant to
the Federal Food, Drug and Cosmetic Act ("FDCA") and regulations promulgated
thereunder. Most importantly, the FDA has guidelines under the Dietary
Supplement Health and Education Act (DSHEA) to enable the manufacturing,
advertising, marketing, and sale of dietary supplements. In addition, the
FTC has overlapping jurisdiction with the FDA to regulate the interstate
labeling, promotion, advertising and sale of dietary supplements, over the
counter drugs, and foods.
9
Compliance with applicable FDA and any state or local statutes is crucial.
Although we believe that we will be in compliance with applicable statutes,
should the FDA amend its guidelines or impose more stringent interpretations
of current laws or regulations, we may not be able to comply with these new
guidelines. As a marketer of products that are ingested by consumers, we are
always subject to the risk that one or more of our products that currently
are not subject to regulatory action may become subject to regulatory action.
Such regulations could require the reformation of certain products to meet
new standards, market withdrawal or discontinuation of certain products not
able to be reformulated, imposition of additional record keeping
requirements, expanded documentation regarding the properties of certain
products, expanded or different labeling and/or additional scientific
substantiation. Failure to comply with applicable requirements could result
in sanctions being imposed on us, or the contract manufacturers of any of our
products, including but not limited to fines, injunctions, product recalls,
seizures and criminal prosecution.
The FDCA generally regulates ingredients added to foods and requires that
such ingredients making up a food product are themselves safe for their
intended uses. In this regard, generally when a company adds an ingredient
to a food, the FDCA requires that the ingredient either be determined by the
Company to be generally regarded as safe ("GRAS") by qualified experts or go
through FDA's review and approval process as a food additive.
The FDCA has been amended with respect to dietary supplements by the Dietary
Supplement Health and Education Act of 1994 ("DSHEA"). The DSHEA provides a
statutory framework governing the safety, composition and labeling of dietary
supplements. It regulates the types of statements that can be made
concerning the effect of a dietary supplement. The DSHEA generally defines
the term "dietary supplement" to include products that contain a "dietary
ingredient" which may include vitamins, minerals, herbs or other botanicals,
amino acids, and metabolites. Under the DSHEA, a dietary supplement
manufacturer is responsible for ensuring that a dietary supplement is safe
before it is marketed. Under DSHEA, dietary ingredients that were on the
market before October 15, 1994 may be sold without FDA pre-approval and
without notifying the FDA. On the other hand, a new dietary ingredient (one
not lawfully on the market before October 15, 1994), requires proof that it
has been present in the food supply as an article used for food without being
chemically altered, or evidence of a history of use or other evidence of
safety establishing that it is reasonably expected to be safe. With respect
to products or supplements that are manufactured and distributed on our
behalf, we intend to comply with and will endeavor to bring our operations
into compliance with regulatory requirements relating to such products or
supplements. However, the FDA may not accept the evidence of safety for any
new dietary ingredients that we may decide to use, and the FDA's refusal to
accept such evidence could result in regulation of such dietary ingredients
as adulterated, until such time as reasonable expectation of safety for the
ingredient can be established to the satisfaction of the FDA.
10
With respect to labeling, DSHEA permits "statements of nutritional support"
for dietary supplements without FDA pre-approval. Such statements may
describe how particular dietary ingredients affect the structure, function or
general well being of the body, or the mechanism of action by which a dietary
ingredient may affect body structure, function or well being (but may not
state that a dietary supplement will diagnose, mitigate, treat, cure or
prevent a disease). A company making a statement of nutritional support must
possess substantiating evidence for the statement, and disclose on the label
that the FDA has not reviewed that statement and that the product is not
intended to diagnose, treat, cure or prevent a disease.
The DSHEA allows the dissemination of "third party literature", publications
such as reprints of scientific articles linking particular dietary,
ingredients with health benefits. Third party literature may be used in
connection with the sale of dietary supplements to consumers. Such a
publication may be so used if, among other things, it is not false or
misleading, no particular brand of dietary supplement is promoted and a
balanced view of available scientific information on the subject matter is
presented. There can be no assurance, however, that all pieces of third
party literature that may be disseminated in connection with our products
will be determined by the FDA to satisfy each of these requirements, and any
such failure could subject the product involved to regulation as a new drug
or as a "misbranded" product, causing us to incur substantial fines and
penalties.
The products covered by the Patent and product related activities may also be
subject to regulation by other regulatory agencies, including but not limited
to the Federal Trade Commission ("FTC"), the Consumer Products Safety
Commission, the United States Department of Agriculture, the United States
Postal Service, the United States Environmental Protection Agency and the
Occupational Safety and Health Administration. Advertising of dietary
supplement products is subject to regulation by the FTC under the Federal
Trade Commission Act ("FTCA"). The FTCA prohibits unfair methods of
competition and unfair or deceptive trade acts or practices in or affecting
commerce. Furthermore, the FTCA provides that the dissemination or the
causing to be disseminated of any false advertising pertaining to drugs or
foods, which would include dietary supplements, is an unfair or deceptive act
or practice. Under the FTC's Substantiation Doctrine, an advertiser is
required to have a "reasonable basis" for all objective product claims before
the claims are made. Pursuant to this FTC requirement, we are required to
have adequate substantiation of all material advertising claims made for
products covered by the Patent. Failure to adequately substantiate claims may
be considered either deceptive or unfair practices.
The FTC has recently issued a guidance document to assist supplement
marketers of dietary supplement products in understanding and complying with
the substantiation requirement.
11
The FTC is authorized to use a variety of processes and remedies for
enforcement, both administratively and judicially including compulsory
process, cease and desist orders, and injunctions. FTC enforcement can
result in orders requiring, among other things, limits on advertising,
corrective advertising, consumer redress, divestiture of assets, rescission
of contracts and such other relief as may be deemed necessary. State and
local authorities can also regulate advertising and labeling for dietary
supplements and conventional foods.
Our activities are also regulated by various agencies of the states and
localities in which products are sold. The products and product-related
activities may also be regulated by the applicable regulatory agencies in
other countries in which the products are sold. In foreign markets, prior to
commencement of operations and prior to making sales, we may be required to
obtain approval, license or certification from the country's agency governing
health. The approval process can be lengthy and costly and may require
reformulation of products or labeling. Our failure to comply with foreign
regulations could result in products being rejected for sale in such country.
We believe that current and reasonably foreseeable governmental regulation
will have minimal impact on our business.
Compliance With Environmental Laws
- ----------------------------------
We are not aware of any environmental laws that have been enacted, nor are we
aware of any such laws being contemplated for the future, that impact issues
specific to our business. In our industry, environmental laws are anticipated
to apply directly to the owners and operators of companies. They do not apply
to companies or individuals providing consulting services, unless they have
been engaged to consult on environmental matters. We are not planning to
provide environmental consulting services.
Employees
- ---------
We have no full-time employees at the present time. Our officers and
directors are responsible for all planning, developing and operational
duties, and will continue to do so throughout the early stages of our growth.
We have no intention of hiring employees until the business has been
successfully launched.
12
Item 1A. Risk Factors.
RISK FACTORS RELATING TO OUR COMPANY
------------------------------------
1. Since we are a development marketing services company, we have generated
no revenues, an investment in the shares offered herein is highly risky and
could result in a complete loss of your investment if we are unsuccessful in
our business plan.
Our company was incorporated on July 19, 2007, and we have a limited
operating history in the nutraceutical business. We have realized no
revenues. We have no solid operating history upon which an evaluation of our
future prospects can be made. Our only nutraceutical business activities to
date have been acquisition of certain intellectual property pursuant to
research agreements in association with Pennsylvania State University. We
are subject to all of the business risks and uncertainties associated with
any new business enterprise. In light of our lack of any operating history,
there can be no assurance that we will be able to implement any aspect of our
business plan or establish a successful business.
2. If our business plan is not successful, we may not be able to continue
operations as a going concern and our stockholders may lose their entire
investment in us.
As discussed in the Notes to Financial Statements included in this annual
report, at July 31, 2008 we had working capital of $35,031. Subsequently, we
have raised $505,000. We had a net loss of approximately $(6,919) for the
period July 19, 2007 (inception) to July 31, 2007.
These factors raise substantial doubt that we will be able to continue
operations as a going concern, and our independent auditors included an
explanatory paragraph regarding this uncertainty in their report on our
financial statements for the period July 19, 2007 (inception) to July 31,
2008. Our ability to continue as a going concern is dependent upon our
generating cash flow sufficient to fund operations and reducing operating
expenses. Our business plans may not be successful in addressing these
issues. If we cannot continue as a going concern, our stockholders may lose
their entire investment in us.
3. We expect losses in the future because we have generated no revenue.
We have generated no revenues, we are expect losses over the next twelve (12)
months since we have no revenues to offset the expenses associated in
executing our business plan. We cannot guarantee that we will ever be
successful in generating revenues in the future. We recognize that if we are
unable to generate revenues, we will not be able to earn profits or continue
operations as a going concern. There is no history upon which to base any
assumption as to the likelihood that we will prove successful, and we can
provide investors with no assurance that we will generate any operating
revenues or ever achieve profitable operations.
13
4. We have no operating history as an independent public company and we
may be unable to operate profitably as a stand-alone company.
In order to establish our business, we will need to rely on the sales of the
products and will incur expenses for advertising, information systems, rent
and additional personnel to support these activities in addition to the
salary expenses already mentioned. We therefore expect to incur substantial
operating losses for the foreseeable future. Our ability to become
profitable depends on our ability to have successful operations and to
generate and sustain sales, while maintaining reasonable expense levels, all
of which are uncertain in light of our absence of any prior operating
history.
We may not be able to successfully put in place the financial, administrative
and managerial structure necessary to operate as fully reporting independent
public company, and the development of such structure will require a
significant amount of management's time and other resources.
5. We face substantial uncertainties in establishing our business.
To date, our only material business activities have been the acquisition of
intellectual property from Penn State. We have obtained funding, and started
the process of developing nutraceutical product(s). We have not generated
any income and have generated minimal revenue.
We believe that in order to establish a successful business we must, among
other things, hire personnel to run our day to operations, develop a
distribution network and establish a customer base. If we are unable to
accomplish one or more of these goals, our business may fail.
6. Our business is sensitive to public perception. If any product we develop
proves to be harmful to consumers or if scientific studies provide
unfavorable findings regarding their safety or effectiveness, then our image
in the marketplace would be negatively impacted.
Our results of operations may be significantly affected by the public's
perception of our Company and similar companies. In addition, our business
could be adversely affected if any of our future products prove to be harmful
to consumers or if scientific studies provide unfavorable findings regarding
the safety or effectiveness of our products or any similar products.
Moreover, the U.S. FDA could potentially regulate our industry in the future
and adversely affect our marketing ability and success. While quality
control testing is conducted on the ingredients in such products, we are
highly dependent upon consumers' perception of the overall integrity of the
dietary supplements business. The safety and quality of products made by
competitors in our industry may not adhere to the same quality standards that
ours do, and may result in a negative consumer perception of the entire
industry. If our future products suffer from negative consumer perception,
it is likely our sales will slow and we will have difficultly generating
revenues.
14
7. If our future products do not have the healthful effects intended, our
business may suffer.
In general, our future products will consist of food, nutritional supplements
which are classified in the United States as "dietary supplements" which we
believe do not require approval from the FDA or other regulatory agencies
prior to sale. Although many of the ingredients in such products are
vitamins, minerals, herbs and other substances for which there is a long
history of human consumption, they contain innovative ingredients or
combinations of ingredients. Although we believe all of such products and
the combinations of ingredients in them are safe when taken as directed by
the Company, there is little long-term experience with human or other animal
consumption of certain of these innovative product ingredients or
combinations thereof in concentrated form. The products could have certain
side effects if not taken as directed or if taken by a consumer that has
certain medical conditions. In addition, such products have been proven to
be more effective when taken in accordance with certain instructions which
include certain dietary restrictions. Therefore, such products may not be
effective if such instructions are not followed. Furthermore, there can be
no assurance that any of the products, even when used as directed, will have
the effects intended or will not have harmful side effects. If any of such
products were shown to be harmful or negative publicity resulted from an
individual who was allegedly harmed by one product, it could hurt our
business, profitability and growth prospects.
8. We may not be able to raise sufficient capital or generate adequate
revenue to meet our obligations and fund our operating expenses.
Failure to raise adequate capital and generate adequate sales revenues to
meet our obligations and develop and sustain our operations could result in
reducing or ceasing our operations. Additionally, even if we do raise
sufficient capital and generate revenues to support our operating expenses,
there can be no assurances that the revenue will be sufficient to enable us
to develop business to a level where it will generate profits and cash flows
from operations. These matters raise substantial doubt about our ability to
continue as a going concern. Our independent auditors currently included an
explanatory paragraph in their report on our financial statements regarding
concerns about our ability to continue as a going concern.
15
9. We may not be able to compete with larger sales contract companies, the
majority of whom have greater resources and experience than we do.
The market for nutraceuticals is highly competitive. Numerous manufacturers
and distributors compete with us for customers throughout the United States,
Canada and internationally in the packaged nutritional supplement industry
selling products to retailers such as mass merchandisers, drug store chains,
independent pharmacies, and health food stores. Many of our competitors are
substantially larger and more experienced than we are. In addition, they
have longer operating histories and have materially greater financial and
other resources than we do. They therefore have the advantage of having
established reputations, brand names, track records, back office and
managerial support systems and other advantages that we will be unable to
duplicate in the near future. Many of these competitors are private
companies, and therefore, we cannot compare our revenues with respect to the
sales volume of each competitor. If we cannot compete in the marketplace, we
may have difficulty selling our products and generating revenues.
Additionally, competition may drive down the prices of our products, which
could adversely affect our cost of goods sold and our profitability, if any.
We are also subject to competition from many drug companies due to the fact
that our product has what we believe to be health benefits that certain drugs
are created to produce.
We are also subject to competition in the attraction and retention of
employees. Many of our competitors have greater financial resources and can
offer employees compensation packages that are difficult for us to compete
with.
10. We depend upon our executive officers and key personnel.
Our performance depends substantially on the performance of our executive
officers. Our chief executive officer is the inventor of the process and
formulas used to contract manufacture the future products to be sold by us.
We anticipate that he will be the developer of any additional products that
we plan to add to our product line. The loss of services of our chief
executive officer could have a material adverse effect on our business,
revenues, and results of operations or financial condition. We do not
maintain key person life insurance on the lives of our officers or key
employees.
The success of our business in the future will depend on our ability to
attract, train, retain and motivate high quality personnel. Competition for
talented personnel is intense, and we may not be able to continue to attract,
train, retain or motivate other highly qualified technical and managerial
personnel in the future. In addition, market conditions may require us to
pay higher compensation to qualified management and technical personnel than
we currently anticipate. Any inability to attract and retain qualified
management and technical personnel in the future could have a material
adverse effect on our business, prospects, financial condition, and/or
results of operations.
16
11. Our success is dependent upon our ability to protect and promote our
proprietary rights.
Our success will depend in large part on our ability to protect and promote
our proprietary rights to our formulas and proprietary processes and
ingredients.
Our ability to compete effectively depends, to a significant extent, on our
ability to maintain the proprietary nature of our intellectual property.
There can be no assurance that the scope of the steps we take to protect all
of our interests cant be circumvented, or that it will not violate the
proprietary rights of others, or that we will not be prevented from using our
product if challenged. In fact, even if broad enough, others may still
infringe upon our rights, which will be costly to protect. Furthermore, the
laws of other countries may less effectively protect our proprietary rights
than U.S. laws. Infringement of our rights by a third party could result in
uncompensated lost market and revenue opportunities.
12. We are at risk for product liability claims and require adequate
insurance to protect us against such claims. If we are unable to secure the
necessary insurance coverage at affordable cost to protect our business
against any claims, then our exposure to liability will greatly increase and
our ability to market and sell our products will be more difficult since
certain customers rely on this insurance in order to distribute our products.
We are constantly at risk that consumers and users of our products will bring
lawsuits alleging product liability. Even though we do not manufacture
products, a consumer could bring a lawsuit against us alleging product
liability due to our ownership of the product(s). We are not aware of any
claims pending against us that would adversely affect our business. While we
will continue to attempt to take what we consider to be appropriate
precautions, these precautions may not protect us from significant product
liability exposure in the future. We currently do not have any product
liability insurance and there can be no assurance that even if we were to
attempt to obtain such insurance that we will be able to obtain, retain
coverage or that this coverage will be cost-justified or sufficient to
satisfy any future claims. If we are sued, we may not have sufficient
resources to defend against the suit or to pay damages. A material lawsuit
could negatively impact our business.
17
13. Our officers/directors own a controlling interest in our voting stock and
investors will not have any voice in our management, which could result in
decisions adverse to our general shareholders.
Our officers/directors, in the aggregate, beneficially own approximately or
have the right to vote approximately 41.1% of our outstanding common stock.
As a result, these stockholders, acting together, will have the ability to
control matters submitted to our stockholders for approval including:
a) election of our board of directors;
b) removal of any of our directors;
c) amendment of our Articles of Incorporation or bylaws; and
d) adoption of measures that could delay or prevent a change in control or
impede a merger, takeover or other business combination involving us.
As a result of their ownership and positions, these individuals have the
ability to influence all matters requiring shareholder approval, including
the election of directors and approval of significant corporate transactions.
In addition, the future prospect of sales of significant amounts of shares
held by our director and executive officer could affect the market price of
our common stock if the marketplace does not orderly adjust to the increase
in shares in the market and the value of your investment in the company may
decrease. Management's stock ownership may discourage a potential acquirer
from making a tender offer or otherwise attempting to obtain control of us,
which in turn could reduce our stock price or prevent our stockholders from
realizing a premium over our stock price.
RISKS RELATING TO OUR COMMON SHARES
-----------------------------------
14. We may, in the future, issue additional common shares, which would reduce
investors' percent of ownership and may dilute our share value.
Our Articles of Incorporation authorize the issuance of 70,000,000 shares of
common stock and 5,000,000 preferred shares. The future issuance of common
stock may result in substantial dilution in the percentage of our common
stock held by our then existing shareholders. We may value any common stock
issued in the future on an arbitrary basis. The issuance of common stock for
future services or acquisitions or other corporate actions may have the
effect of diluting the value of the shares held by our investors, and might
have an adverse effect on any trading market for our common stock.
18
15. Our common shares are subject to the "Penny Stock" Rules of the SEC and
the trading market in our securities is limited, which makes transactions in
our stock cumbersome and may reduce the value of an investment in our stock.
The Securities and Exchange Commission has adopted Rule 15g-9 which
establishes the definition of a "penny stock," for the purposes relevant to
us, as any equity security that has a market price of less than $5.00 per
share or with an exercise price of less than $5.00 per share, subject to
certain exceptions.
For any transaction involving a penny stock, unless exempt, the rules
require: (a) that a broker or dealer approve a person's account for
transactions in penny stocks; and (b) the broker or dealer receive from the
investor a written agreement to the transaction, setting forth the identity
and quantity of the penny stock to be purchased.
In order to approve a person's account for transactions in penny stocks, the
broker or dealer must: (a) obtain financial information and investment
experience objectives of the person; and (b) make a reasonable determination
that the transactions in penny stocks are suitable for that person and the
person has sufficient knowledge and experience in financial matters to be
capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prescribed by the Commission relating to the penny
stock market, which, in highlight form: (a) sets forth the basis on which the
broker or dealer made the suitability determination; and (b) that the broker or
dealer received a signed, written agreement from the investor prior to the
transaction. Generally, brokers may be less willing to execute transactions in
securities subject to the "penny stock" rules. This may make it more difficult
for investors to dispose of our Common shares and cause a decline in the market
value of our stock.
Disclosure also has to be made about the risks of investing in penny stocks in
both public offerings and in secondary trading and about the commissions
payable to both the broker-dealer and the registered representative, current
quotations for the securities and the rights and remedies available to an
investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in
penny stocks.
16. Because we do not intend to pay any cash dividends on our common stock, our
stockholders will not be able to receive a return on their shares unless they
sell them.
We intend to retain any future earnings to finance the development and
expansion of our business. We do not anticipate paying any cash dividends on
our common stock in the foreseeable future. Unless we pay dividends, our
stockholders will not be able to receive a return on their shares unless they
sell them. There is no assurance that stockholders will be able to sell
shares when desired.
19
17. We may issue shares of preferred stock in the future that may adversely
impact your rights as holders of our common stock.
Our articles of incorporation authorize us to issue up to 5,000,000 shares of
preferred stock. Accordingly, our board of directors will have the authority
to fix and determine the relative rights and preferences of preferred shares,
as well as the authority to issue such shares, without further stockholder
approval. As a result, our board of directors could authorize the issuance
of a series of preferred stock that would grant to holders preferred rights
to our assets upon liquidation, the right to receive dividends before
dividends are declared to holders of our common stock, and the right to the
redemption of such preferred shares, together with a premium, prior to the
redemption of the common stock. To the extent that we do issue such
additional shares of preferred stock, your rights as holders of common stock
could be impaired thereby, including, without limitation, dilution of your
ownership interests in us. In addition, shares of preferred stock could be
issued with terms calculated to delay or prevent a change in control or make
removal of management more difficult, which may not be in your interest as
holders of common stock.
18. We have incurred increased costs as a result of being a public company.
As a public company, we have incurred significant legal, accounting and other
expenses that we did not incur as a private company. In addition, the
Sarbanes-Oxley Act of 2002, as well as related rules adopted by the
Securities and Exchange Commission, has imposed substantial requirements on
public companies, including certain corporate governance practices and
requirements relating to internal control over financial reporting. We
expect these rules and regulations to increase our legal and financial
compliance costs and to make some activities more time-consuming and costly.
In addition, in the future we will be required to document, evaluate, and
test our internal control procedures under Section 404 of the Sarbanes-Oxley
Act and the related rules of the Securities and Exchange Commission which
will be costly and time consuming. Effective internal controls are necessary
for us to produce reliable financial reports and are important in helping
prevent financial fraud. If we are unable to achieve and maintain adequate
internal controls, our business and operating results could be harmed.
20
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Properties.
Our corporate headquarters are located at 2811 Reidville Road, Suite 23,
Spartanburg, SC 29301. We believe our current office space is adequate for
our immediate needs; however, as our operations expand, we may need to locate
and secure additional office space.
Item 3. Legal Proceedings.
From time to time, we may become involved in various lawsuits and legal
proceedings, which arise in the ordinary course of business. However,
litigation is subject to inherent uncertainties, and an adverse result in
these or other matters may arise from time to time that may harm our
business.
We are not presently a party to any material litigation, nor to the knowledge
of management is any litigation threatened against us, which may materially
affect us.
Item 4. Submission of Matters to a Vote of Security Holders.
We did not submit any matters to a vote of our security holders during the
past fiscal year.
21
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
(a) Market Information
Total Nutraceutical Solutions common stock, $0.001 par value, is traded on
the OTC-Bulletin Board under the symbol: GMKG. The stock was cleared for
trading on the OTC-Bulletin Board on November 1, 2007.
Since the Company has been cleared for trading, through October 27, 2008,
there have been no trades of the Company's stock. There are no assurances
that a market will ever develop for the Company's stock.
(b) Holders of Common Stock
As of October 27, 2008, there were approximately 115 holders of record of
our Common Stock and 55,923,750 shares outstanding.
(c) Dividends
In the future we intend to follow a policy of retaining earnings, if any, to
finance the growth of the business and do not anticipate paying any cash
dividends in the foreseeable future. The declaration and payment of future
dividends on the Common Stock will be the sole discretion of board of
directors and will depend on our profitability and financial condition,
capital requirements, statutory and contractual restrictions, future
prospects and other factors deemed relevant.
(d) Securities Authorized for Issuance under Equity Compensation Plans
There are no outstanding grants or rights or any equity compensation plan in
place.
Recent Sales of Unregistered Securities
- ---------------------------------------
On July 10, 2008, the Company issued 40,000,000 unregistered shares of its
common stock, par value $0.001, from its treasury to fifteen individuals in
exchange for $40,000 cash. The Company relied on the exemption from
registration provided by Section 4(2) and Rule 506 of Regulation D under the
Securities Act of 1933, as amended. The offer and sale did not involve a
public offering and there was not any general solicitation or general
advertising involved in the offer or sale.
On October 27, 2008, the Company issued 5,050,000 unregistered shares of its
common stock, par value $0.001, from its treasury to thirteen individuals in
exchange for $505,000 cash. The Company relied on the exemption from
registration provided by Section 4(2) and Rule 506 of Regulation D under the
Securities Act of 1933, as amended. The offer and sale did not involve a
public offering and there was not any general solicitation or general
advertising involved in the offer or sale.
22
Issuer Purchases of Equity Securities
- -------------------------------------
We did not repurchase any of our equity securities during the years ended
July 31, 2008 or 2007.
Item 6. Selected Financial Data.
Not applicable.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Overview of Current Operations
- ------------------------------
Total Nutraceutical Solutions, was organized by the filing of Articles of
Incorporation with the Secretary of State of the State of Nevada on July 19,
2007. On October 8, 2008, the Company filed amended Articles with the
Secretary of State of the State of Nevada to change its corporate name to
Total Nutraceutical Solutions.
We are a developmental stage company which plans to create and execute sales
and marketing programs with the goal of demonstrating our ability to maximize
our sales performance for nutraceutical products. Management is currently
working on its own formulations to produce, manufacture and market is own
line of over-the-counter products, specifically nutraceutical products. The
Company has not developed nor produced any products at the close of its
fiscal year. Emphasis has been placed on raising sufficient capital to
develop these products. On October 8, 2008, the Company closed a private
offering whereby the Company raised $505,000 in exchange for 5,050,000
unregistered shares of its common stock. These funds will be used to develop
and market nutraceutical products.
Our nutraceutical business activities have been minimal and have included the
acquisition of certain intellectual property pursuant to research agreements
in association with Pennsylvania State University. These research endeavors
resulted in the filing of U.S. Provisional Patent Application No. 60/782,204,
entitled "Identification of Selenoergothioneine as a Natural Organic Form of
Selenium from Cultivated Mushrooms." We purchased an option assignment to
license from Pennsylvania State University the technologies associated with
the intellectual property. This intellectual property is one of the
cornerstones of our business.
23
Results of Operations for the year ended July 31, 2008
- ------------------------------------------------------
We earned no revenues since our inception on July 19, 2007 through July 31,
2008. We do not anticipate earning any significant revenues until such time
as we can bring to the market a nutraceutical product(s). We are presently in
the development stage of our business and we can provide no assurance that we
will be successful in developing any nutraceutical product(s).
For the period since inception through July 31, 2008, we generated no income.
Since our inception on July 19, 2007 we experienced a net loss of
$(6,919). Our loss was attributed to organizational expenses, accounting and
legal fees. We anticipate our operating expenses will increase as we start
to develop and market nutraceutical product(s). We anticipate our ongoing
operating expenses will also increase since we are a reporting company under
the Securities Exchange Act of 1934.
Revenues
- --------
We generated no revenues for the period from July 19, 2007 (inception)
through July 31, 2008. We do not anticipate generating any revenues for at
least 6-12 months.
Going Concern
- -------------
Our independent auditors 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.
Summary of any product research and development that we will perform for the
term of our plan of operation.
- ----------------------------------------------------------------------------
We acquired certain intellectual property pursuant to research agreements in
association with Pennsylvania State University. These research endeavors
resulted in the filing of U.S. Provisional Patent Application No. 60/782,204,
entitled "Identification of Selenoergothioneine as a Natural Organic Form of
Selenium from Cultivated Mushrooms." We purchased an option assignment to
license from Pennsylvania State University the technologies associated with
the intellectual property. This intellectual property is the cornerstone of
our business.
24
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 items are not required by us at this time.
Significant changes in the number of employees
- -----------------------------------------------
As of July 31, 2008, we did not have any employees. We are dependent upon
our officers and directors for our future business development. As our
operations expand we anticipate the need to hire additional employees,
consultants and professionals; however, the exact number is not quantifiable
at this time.
Liquidity and Capital Resources
- -------------------------------
Our balance sheet as of July 31, 2008 reflects cash of $35,031 and current
Liabilities of $1,500. Cash and cash equivalents from inception to date have
been sufficient to provide the operating capital necessary to operate to
date.
On October 8, 2008, we issued 5,050,000 unregistered shares of our common
stock, par value $0.001, from our treasury to thirteen individuals in
exchange for $505,000 cash. Management believes it has sufficient funds to
remain operational for next twelve months.
As a result of the Company's current limited available cash, no officer or
director received cash compensation during the year ended July 31, 2008. The
Company has no employment agreements in place with its officers.
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 Estimates
- ------------------------------------------
Revenue Recognition: We recognize revenue from product sales once all of the
following criteria for revenue recognition have been met: pervasive evidence
that an agreement exists; the services have been rendered; the fee is fixed
and determinable and not subject to refund or adjustment; and collection of
the amount due is reasonable assured.
25
New Accounting Standards
- ------------------------
In May 2008, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 163, "Accounting for Financial Guarantee Insurance Contracts-and
interpretation of FASB Statement No. 60". SFAS No. 163 clarifies how
Statement 60 applies to financial guarantee insurance contracts, including
the recognition and measurement of premium revenue and claims liabilities.
This statement also requires expanded disclosures about financial guarantee
insurance contracts. SFAS No. 163 is effective for fiscal years beginning on
or after December 15, 2008, and interim periods within those years. SFAS No.
163 has no effect on the Company's financial position, statements of
operations, or cash flows at this time.
In May 2008, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 162, "The Hierarchy of Generally Accepted Accounting Principles". SFAS
No. 162 sets forth the level of authority to a given accounting pronouncement
or document by category. Where there might be conflicting guidance between
two categories, the more authoritative category will prevail. SFAS No. 162
will become effective 60 days after the SEC approves the PCAOB's amendments
to AU Section 411 of the AICPA Professional Standards. SFAS No. 162 has no
effect on the Company's financial position, statements of operations, or cash
flows at this time.
In March 2008, the Financial Accounting Standards Board, or FASB, issued SFAS
No. 161, Disclosures about Derivative Instruments and Hedging Activities-an
amendment of FASB Statement No. 133. This standard requires companies to
provide enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under Statement 133 and its related interpretations, and (c)
how derivative instruments and related hedged items affect an entity's
financial position, financial performance, and cash flows. This Statement is
effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early application encouraged.
The Company has not yet adopted the provisions of SFAS No. 161, but does not
expect it to have a material impact on its consolidated financial position,
results of operations or cash flows.
In December 2007, the SEC issued Staff Accounting Bulletin (SAB) No. 110
regarding the use of a "simplified" method, as discussed in SAB No. 107 (SAB
107), in developing an estimate of expected term of "plain vanilla" share
options in accordance with SFAS No. 123 (R), Share-Based Payment. In
particular, the staff indicated in SAB 107 that it will accept a company's
election to use the simplified method, regardless of whether the company has
sufficient information to make more refined estimates of expected term. At
the time SAB 107 was issued, the staff believed that more detailed external
information about employee exercise behavior (e.g., employee exercise
patterns by industry and/or other categories of companies) would, over time,
become readily available to companies. Therefore, the staff stated in SAB 107
26
that it would not expect a company to use the simplified method for share
option grants after December 31, 2007. The staff understands that such
detailed information about employee exercise behavior may not be widely
available by December 31, 2007. Accordingly, the staff will continue to
accept, under certain circumstances, the use of the simplified method beyond
December 31, 2007. The Company currently uses the simplified method for
"plain vanilla" share options and warrants, and will assess the impact of SAB
110 for fiscal year 2009. It is not believed that this will have an impact on
the Company's consolidated financial position, results of operations or cash
flows.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements-an amendment of ARB No. 51. This statement
amends ARB 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as
equity in the consolidated financial statements. Before this statement was
issued, limited guidance existed for reporting noncontrolling interests. As a
result, considerable diversity in practice existed. So-called minority
interests were reported in the consolidated statement of financial position
as liabilities or in the mezzanine section between liabilities and equity.
This statement improves comparability by eliminating that diversity. This
statement is effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2008 (that is, January 1,
2009, for entities with calendar year-ends). Earlier adoption is prohibited.
The effective date of this statement is the same as that of the related
Statement 141 (revised 2007). The Company will adopt this Statement
beginning March 1, 2009. It is not believed that this will have an impact on
the Company's consolidated financial position, results of operations or cash
flows.
In December 2007, the FASB, issued FAS No. 141 (revised 2007), Business
Combinations. This Statement replaces FASB Statement No. 141, Business
Combinations, but retains the fundamental requirements in Statement 141.
This Statement establishes principles and requirements for how the acquirer:
(a) recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in
the acquiree; (b) recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase; and (c) determines
what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination. This
statement applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. An entity may not apply it
before that date. The effective date of this statement is the same as that of
the related FASB Statement No. 160, Noncontrolling Interests in Consolidated
Financial Statements. The Company will adopt this statement beginning March
1, 2009. It is not believed that this will have an impact on the Company's
consolidated financial position, results of operations or cash flows.
27
In February 2007, the FASB, issued SFAS No. 159, The Fair Value Option for
Financial Assets and Liabilities-Including an Amendment of FASB Statement No.
115. This standard permits an entity to choose to measure many financial
instruments and certain other items at fair value. This option is available
to all entities. Most of the provisions in FAS 159 are elective; however, an
amendment to FAS 115 Accounting for Certain Investments in Debt and Equity
Securities applies to all entities with available for sale or trading
securities. Some requirements apply differently to entities that do not
report net income. SFAS No. 159 is effective as of the beginning of an
entities first fiscal year that begins after November 15, 2007. Early
adoption is permitted as of the beginning of the previous fiscal year
provided that the entity makes that choice in the first 120 days of that
fiscal year and also elects to apply the provisions of SFAS No. 157 Fair
Value Measurements. The Company will adopt SFAS No. 159 beginning March 1,
2008 and is currently evaluating the potential impact the adoption of this
pronouncement will have on its consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
This statement defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles (GAAP), and expands
disclosures about fair value measurements. This statement applies under other
accounting pronouncements that require or permit fair value measurements, the
Board having previously concluded in those accounting pronouncements that
fair value is the relevant measurement attribute. Accordingly, this statement
does not require any new fair value measurements. However, for some entities,
the application of this statement will change current practice. This
statement is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years. Earlier application is encouraged, provided that the reporting entity
has not yet issued financial statements for that fiscal year, including
financial statements for an interim period within that fiscal year. The
Company will adopt this statement March 1, 2008, and it is not believed that
this will have an impact on the Company's consolidated financial position,
results of operations or cash flows.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
28
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements
Financial Statement
-------------------
PAGE
----
Independent Auditors' Report F-1
Balance Sheets F-2
Statements of Operations F-3
Statements of Changes in Stockholders' Equity F-4
Statements of Cash Flows F-5
Notes to Financials F-6
29
MOORE & ASSOCIATES, CHARTERED
ACCOUNTANTS AND ADVISORS
------------------------
PCAOB REGISTERED
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
To the Board of Directors
Generic Marketing Services, Inc.
(A Development Stage Company)
We have audited the accompanying balance sheets of Generic Marketing Services,
Inc. as of July 31, 2008 and 2007, and the related statements of operations,
stockholders' equity and cash flows for the year then ended July 31, 2008 and
since inception on July 19, 2007 through July 31, 2007 and July 31, 2008.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Generic Marketing Services,
Inc. as of July 31, 2008 and 2007, and the related statements of operations,
stockholders' equity and cash flows for the year then ended July 31, 2008 and
since inception on July 19, 2007 through July 31, 2007 and July 31, 2008, in
conformity with accounting principles generally accepted in the United States
of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has not commenced its planned principal
operations and it has not generated any revenues, which raises substantial
doubt about its ability to continue as a going concern. Management's plans
concerning these matters are also described in Note 3. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
/s/ Moore & Associates, Chartered
- ---------------------------------
Moore & Associates Chartered
Las Vegas, Nevada
October 16, 2008
2675 S. Jones Blvd. Suite 109, Las Vegas, NV 89146
(702) 253-7499 Fax (702) 253-7501
F-1
Generic Marketing Services, Inc.
(A Development Stage Company)
Balance Sheets
Balance Sheets
July 31, July 31,
2008 2007
------------- -------------
ASSETS
Current assets:
Cash and equivalents $ 35,031 $ -
------------- -------------
Total current assets 35,031 -
------------- -------------
TOTAL ASSETS $ 35,031 $ -
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 1,500 -
------------- -------------
Total liabilities 1,500 -
------------- -------------
Stockholders' equity:
Preferred stock, $0.001 par value, 5,000,000
Shares authorized, none issued - -
Common stock, $0.001 par value, 70,000,000
shares authorized, 50,873,750, 0 issued and
outstanding as of 7/31/08 and 7/31/07,
respectively 50,874 -
Additional paid-in capital (10,424) 400
(Deficit) accumulated during development
stage (6,919) (400)
------------- -------------
Total stockholders' equity 33,531 -
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 35,031 $ -
============= =============
The accompanying notes are an integral part of these financial statements.
F-2
Generic Marketing Services, Inc.
(A Development Stage Company)
Statements of Operations
Statements of Operations
For the year For the year July 19, 2007
Ending Ending (inception) to
July 31, July 31, July 31
2008 2007 2008
---------------- ---------------- ----------------
Revenue $ - $ - $ -
---------------- ---------------- ----------------
Expenses:
Organizational Costs - 400 400
General & Administrative
expenses 6,519 - 6,519
---------------- ---------------- ----------------
Total expenses 6,519 400 6,919
---------------- ---------------- ----------------
Net loss before income
taxes (6,519) (400) (6,919)
Provision for income tax - - -
---------------- ---------------- ----------------
Net income (loss) $ (6,519) $ (400) $ (6,919)
================ ================ ================
Net (loss) per share $ 0.00 $ (0.00)
================ ================
Weighted average number of
common shares outstanding 50,873,750 10,873,750
================ ================
The accompanying notes are an integral part of these financial statements.
F-3
Generic Marketing Services, Inc.
(A Development Stage Company)
Statements of Changes in Stockholders' Equity
For the period July 19, 2007 (Date of Inception) to July 31, 2007
Statements of Changes in Stockholders' Equity
(Deficit)
Accumulated
Common Stock Additional During Total
------------------ Paid-in Development Stockholders'
Shares Amount Capital Stage Equity
---------- ------- --------- ---------- --------------
July 2007
Contributed capital 400 400
Net loss for the year
ending July 31, 2007 (400) (400)
---------- ------- --------- ---------- --------------
Balance,
July 31, 2007 - - 400 (400) -
October 2007
Basic Services, Inc.
Spinoff to
Generic Marketing
Services, Inc. 10,873,750 10,874 (10,874) -
July 2008
Sale of common stock
at $0.001 per share 40,000,000 40,000 - 40,000
July 2008
Contributed capital 50 50
Net loss for the year
ending July 31, 2008 (6,519) (6,519)
---------- ------- --------- ---------- --------------
Balance,
July 31, 2008 50,873,750 $50,874 $(10,424) $ (6,919) $ 33,531
========== ======= ========= ========== ==============
The accompanying notes are an integral part of these financial statements.
F-4
Generic Marketing Services, Inc.
(A Development Stage Company)
Statements of Cash Flow
Statements of Cash Flow
For the year For the year July 19, 2007
Ending Ending (inception) to
July 31, July 31, July 31
2008 2007 2008
---------------- ---------------- ----------------
Operating activities:
Net income (loss) $ (6,519) $ (400) $ (6,919)
Adjustments to reconcile
net (loss) to net cash
(used) by operating
activities:
Increase in accounts
payable 1,500 - 1,500
---------------- ---------------- ----------------
Net cash (used) by
operating activities (5,019) (400) (5,419)
---------------- ---------------- ----------------
Financing activities:
Issuance of common stock 40,000 10,874 50,874
Additional paid-in capital - (10,874) (10,474)
Contributed capital 50 - 50
---------------- ---------------- ----------------
Net cash provided by
financing activities 40,050 - 40,450
---------------- ---------------- ----------------
Net increase (decrease)
in cash 35,031 - 35,031
Cash - beginning - - -
---------------- ---------------- ----------------
Cash - ending $ 35,031 $ - $ 35,031
================ ================ ================
Supplemental disclosures:
Interest paid $ - $ -
================ ================ ================
Income taxes paid $ - $ -
================ ================ ================
Non-cash activities $ - $ -
================ ================ ================
The accompanying notes are an integral part of these financial statements.
F-5
[J1] Generic Marketing Services, Inc.
(A Development Stage Company)
Notes to Financial Statements
NOTE 1. General Organization and Business
The Company was organized July 19, 2007 (Date of Inception) under the laws
of the State of Nevada, as Generic Marketing Services, Inc. The Company
was incorporated as a subsidiary of Basic Services, Inc., ("Basic"), a
Nevada corporation. The Company was incorporated to conduct any legal
business. The Company plans to develop a sales staff to market generic
pharmaceutical products.
NOTE 2. Summary of Significant Accounting Practices
The Company had cash assets of $35,031 and current liabilities of $1,500 as
of July 31, 2008. The relevant accounting policies are listed below.
Basis of Accounting
- -------------------
The basis is United States generally accepted accounting principles.
Earnings per Share
- ------------------
The basic earnings (loss) per share is calculated by dividing the Company's
net income (loss) available to common shareholders by the weighted average
number of common shares during the year. The diluted earnings (loss) per
share is calculated by dividing the Company's net income (loss) available to
common shareholders by the diluted weighted average number of shares
outstanding during the year. The diluted weighted average number of shares
outstanding is the basic weighted number of shares adjusted as of the first
of the year for any potentially dilutive debt or equity.
The Company has not issued any options or warrants or similar securities
since inception.
F-6
Generic Marketing Services, Inc.
(A Development Stage Company)
Notes to Financial Statements
NOTE 2. Summary of Significant Accounting Practices (Continued)
Dividends
- ---------
The Company has not yet adopted any policy regarding payment of dividends.
No Dividends have been paid during the period shown.
Income Taxes
- ------------
The provision for income taxes is the total of the current taxes payable and
the net of the change in the deferred income taxes. Provision is made for
the deferred income taxes where differences exist between the period in which
transactions affect current taxable income and the period in which they enter
into the determination of net income in the financial statements.
Year-end
- --------
The Company has selected July 31 as its year-end.
Advertising
- -----------
Advertising is expensed when incurred. There has been no advertising
during the period.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could
differ from those estimates.
F-7
Generic Marketing Services, Inc.
(A Development Stage Company)
Notes to Financial Statements
NOTE 3 - Going concern
The Company's financial statements are prepared using the generally accepted
accounting principles applicable to a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. However, the Company has not commenced its planned principal
operations and it has not generated any revenues. In order to obtain the
necessary capital, the Company is seeking equity and/or debt financing.
There are no assurances that the Company will be successful, without
sufficient financing it would be unlikely for the Company to continue as
a going concern.
NOTE 4 - Stockholders' equity
The Company is authorized to issue 70,000,000 shares of its $0.001 par value
common stock and 5,000,000 shares of its $0.001 par value preferred stock.
On August 13, 2007, record shareholders of Generic Marketing Services common
stock were entitled to receive a special stock dividend of Generic Marketing
Services, Inc., a Nevada corporation, a wholly owned subsidiary of Basic
Services, Inc. This subsidiary was formed to focus on marketing
pharmaceutical and over-the-counter products, as compared to developing
products. This spin off will allow both companies to focus on their
different business plans and not compete in accessing funding in capital
markets.
On October 25, 2007, the record shareholders received one (1) common share,
par value $0.001, of Generic Marketing Services common stock for every share
of Basic Services, Inc. common stock owned. The Generic Marketing Services
stock dividend is based on 10,873,750 shares of Basic Services, Inc. common
stock that were issued and outstanding as of the record date. Subsequently,
10,873,750 shares were issued to the shareholders of Generic Marketing
Services, Inc.
On July 10, 2008, Generic Marketing Services (the "Company") issued
40,000,000 unregistered shares of its common stock, par value $0.001, from
its treasury to fifteen individuals in exchange for $40,000 cash.
Generic Marketing Services sold these shares to further capitalize the
Company, in order to execute its business plan.
There have been no other issuances of common or preferred stock.
F-8
Generic Marketing Services, Inc.
(A Development Stage Company)
Notes to Financial Statements
NOTE 5. Related Party Transactions
The Company does not lease or rent any property. Office services are
provided without charge by a director. Such costs are immaterial to the
financial statements and, accordingly, have not been reflected therein. The
officers and directors of the Company are involved in other business
activities and may, in the future, become involved in other business
opportunities. If a specific business opportunity becomes available, such
persons may face a conflict in selecting between the Company and their other
business interests. The Company has not formulated a policy for the
resolution of such conflicts.
NOTE 6. Provision for Income Taxes
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"), which
requires use of the liability method. SFAS No. 109 provides that deferred
tax assets and liabilities are recorded based on the differences between the
tax bases of assets and liabilities and their carrying amounts for financial
reporting purposes, referred to as temporary differences. Deferred tax
assets and liabilities at the end of each period are determined using the
currently enacted tax rates applied to taxable income in the periods in which
the deferred tax assets and liabilities are expected to be settled or
realized.
The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to income before provision for income
taxes. The sources and tax effects of the differences are as follows:
U.S federal statutory rate (34.0%)
Valuation reserve 34.0%
------
Total -%
NOTE 7. Operating Leases and Other Commitments
The Company has no lease or other obligations.
F-9
Generic Marketing Services, Inc.
(A Development Stage Company)
Notes to Financial Statements
NOTE 8. REVENUE AND EXPENSES
Revenue recognition
- -------------------
The Company recognizes revenue on an accrual basis as it invoices for
services. Revenue is generally realized or realizable and earned when all
of the following criteria are met: 1) persuasive evidence of an arrangement
exists between the Company and our customer(s); 2) services have been rendered;
3) our price to our customer is fixed or determinable; and 4) collectibility
is reasonably assured. For the period from July 19, 2007 (inception) to
July 31, 2008, the Company has not recognized any revenues.
NOTE 9. RECENT ACCOUNTING PRONOUNCEMENTS
In May 2008, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 163, "Accounting for Financial Guarantee Insurance Contracts-and
interpretation of FASB Statement No. 60". SFAS No. 163 clarifies how
Statement 60 applies to financial guarantee insurance contracts, including
the recognition and measurement of premium revenue and claims liabilities.
This statement also requires expanded disclosures about financial guarantee
insurance contracts. SFAS No. 163 is effective for fiscal years beginning on
or after December 15, 2008, and interim periods within those years. SFAS No.
163 has no effect on the Company's financial position, statements of
operations, or cash flows at this time.
In May 2008, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 162, "The Hierarchy of Generally Accepted Accounting Principles". SFAS
No. 162 sets forth the level of authority to a given accounting pronouncement
or document by category. Where there might be conflicting guidance between
two categories, the more authoritative category will prevail. SFAS No. 162
will become effective 60 days after the SEC approves the PCAOB's amendments
to AU Section 411 of the AICPA Professional Standards. SFAS No. 162 has no
effect on the Company's financial position, statements of operations, or cash
flows at this time.
In March 2008, the Financial Accounting Standards Board, or FASB, issued SFAS
No. 161, Disclosures about Derivative Instruments and Hedging Activities-an
amendment of FASB Statement No. 133. This standard requires companies to
provide enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under Statement 133 and its related interpretations, and (c)
F-10
Generic Marketing Services, Inc.
(A Development Stage Company)
Notes to Financial Statements
NOTE 9. RECENT ACCOUNTING PRONOUNCEMENTS - CONTINUED
how derivative instruments and related hedged items affect an entity's
financial position, financial performance, and cash flows. This Statement is
effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early application encouraged.
The Company has not yet adopted the provisions of SFAS No. 161, but does not
expect it to have a material impact on its consolidated financial position,
results of operations or cash flows.
In December 2007, the SEC issued Staff Accounting Bulletin (SAB) No. 110
regarding the use of a "simplified" method, as discussed in SAB No. 107 (SAB
107), in developing an estimate of expected term of "plain vanilla" share
options in accordance with SFAS No. 123 (R), Share-Based Payment. In
particular, the staff indicated in SAB 107 that it will accept a company's
election to use the simplified method, regardless of whether the company has
sufficient information to make more refined estimates of expected term. At
the time SAB 107 was issued, the staff believed that more detailed external
information about employee exercise behavior (e.g., employee exercise
patterns by industry and/or other categories of companies) would, over time,
become readily available to companies. Therefore, the staff stated in SAB 107
that it would not expect a company to use the simplified method for share
option grants after December 31, 2007. The staff understands that such
detailed information about employee exercise behavior may not be widely
available by December 31, 2007. Accordingly, the staff will continue to
accept, under certain circumstances, the use of the simplified method beyond
December 31, 2007. The Company currently uses the simplified method for
"plain vanilla" share options and warrants, and will assess the impact of SAB
110 for fiscal year 2009. It is not believed that this will have an impact on
the Company's consolidated financial position, results of operations or cash
flows.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements-an amendment of ARB No. 51. This statement
amends ARB 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as
equity in the consolidated financial statements. Before this statement was
issued, limited guidance existed for reporting noncontrolling interests. As a
result, considerable diversity in practice existed. So-called minority
interests were reported in the consolidated statement of financial position
as liabilities or in the mezzanine section between liabilities and equity.
This statement improves comparability by eliminating that diversity. This
statement is effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2008 (that is, January 1,
2009, for entities with calendar year-ends). Earlier adoption is prohibited.
F-11
Generic Marketing Services, Inc.
(A Development Stage Company)
Notes to Financial Statements
NOTE 9. RECENT ACCOUNTING PRONOUNCEMENTS - CONTINUED
The effective date of this statement is the same as that of the related
Statement 141 (revised 2007). The Company will adopt this Statement beginning
March 1, 2009. It is not believed that this will have an impact on the
Company's consolidated financial position, results of operations or cash
flows.
In December 2007, the FASB, issued FAS No. 141 (revised 2007), Business
Combinations. This Statement replaces FASB Statement No. 141, Business
Combinations, but retains the fundamental requirements in Statement 141.
This Statement establishes principles and requirements for how the acquirer:
(a) recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in
the acquiree; (b) recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase; and (c) determines
what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination. This
statement applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. An entity may not apply it
before that date. The effective date of this statement is the same as that of
the related FASB Statement No. 160, Noncontrolling Interests in Consolidated
Financial Statements. The Company will adopt this statement beginning March
1, 2009. It is not believed that this will have an impact on the Company's
consolidated financial position, results of operations or cash flows.
In February 2007, the FASB, issued SFAS No. 159, The Fair Value Option for
Financial Assets and Liabilities-Including an Amendment of FASB Statement No.
115. This standard permits an entity to choose to measure many financial
instruments and certain other items at fair value. This option is available
to all entities. Most of the provisions in FAS 159 are elective; however, an
amendment to FAS 115 Accounting for Certain Investments in Debt and Equity
Securities applies to all entities with available for sale or trading
securities. Some requirements apply differently to entities that do not
report net income. SFAS No. 159 is effective as of the beginning of an
entities first fiscal year that begins after November 15, 2007. Early
adoption is permitted as of the beginning of the previous fiscal year
provided that the entity makes that choice in the first 120 days of that
fiscal year and also elects to apply the provisions of SFAS No. 157 Fair
Value Measurements. The Company will adopt SFAS No. 159 beginning March 1,
2008 and is currently evaluating the potential impact the adoption of this
pronouncement will have on its consolidated financial statements.
F-12
Generic Marketing Services, Inc.
(A Development Stage Company)
Notes to Financial Statements
NOTE 9. RECENT ACCOUNTING PRONOUNCEMENTS - CONTINUED
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
This statement defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles (GAAP), and expands
disclosures about fair value measurements. This statement applies under other
accounting pronouncements that require or permit fair value measurements, the
Board having previously concluded in those accounting pronouncements that
fair value is the relevant measurement attribute. Accordingly, this statement
does not require any new fair value measurements. However, for some entities,
the application of this statement will change current practice. This
statement is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years. Earlier application is encouraged, provided that the reporting entity
has not yet issued financial statements for that fiscal year, including
financial statements for an interim period within that fiscal year. The
Company will adopt this statement March 1, 2008, and it is not believed that
this will have an impact on the Company's consolidated financial position,
results of operations or cash flows.
NOTE 10 - SUBSEQUENT EVENTS
On October 7, 2008 the Company filed a Certificate of Amendment with the
Nevada Secretary of State changing its name to Total Nutraceutical Solutions.
On October 27, 2008, the Company issued 5,050,000 unregistered shares of its
common stock, par value $0.001, from its treasury to thirteen individuals in
exchange for $505,000 cash. The Company sold these shares to further
capitalize the Company. The Company relied on the exemption from
registration provided by Section 4(2) and Rule 506 of Regulation D under the
Securities Act of 1933, as amended. The offer and sale did not involve a
public offering and there was not any general solicitation or general
advertising involved in the offer or sale.
F-13
Item 9. Changes in and Disagreements With Accountants On Accounting and
Financial Disclosure.
None.
Item 9A(T). Controls and Procedures.
Evaluation of disclosure controls and procedures
- ------------------------------------------------
Management is responsible for establishing and maintaining adequate internal
control over financial reporting and for the assessment of the effectiveness
of those internal controls. As defined by the SEC, internal control over
financial reporting is a process designed by our principal executive
officer/principal financial officer, to provide reasonable assurance
regarding the reliability of financial reporting and the reparation of the
financial statements in accordance with U. S. generally accepted accounting
principles.
As of the end of the period covered by this report, we initially carried out
an evaluation, under the supervision and with the participation of our
President (who is also our principal financial and accounting officer), of
the effectiveness of the design and operation of our disclosure controls and
procedures. Based on this evaluation, our President and chief financial
officer initially concluded that our disclosure controls and procedures were
not effective.
Management's Report On Internal Control Over Financial Reporting
- ----------------------------------------------------------------
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting. Internal control over financial
reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the
Securities Exchange Act of 1934 as a process designed by, or under the
supervision of, the company's principal executive and principal financial
officers and effected by the company's board of directors, management and
other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America and includes those policies and procedures that:
- - Pertain to the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of the assets of the
company;
30
- - Provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America and that
receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and
- - Provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company's assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate. All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation. Because of the inherent limitations of
internal control, there is a risk that material misstatements may not be
prevented or detected on a timely basis by internal control over financial
reporting. However, these inherent limitations are known features of the
financial reporting process. Therefore, it is possible to design into the
process safeguards to reduce, though not eliminate, this risk.
As of July 31, 2008 management assessed the effectiveness of our internal
control over financial reporting based on the criteria for effective internal
control over financial reporting established in Internal Control--Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission ("COSO") and SEC guidance on conducting such assessments. Based
on that evaluation, they concluded that, during the period covered by this
report, such internal controls and procedures were not effective to detect
the inappropriate application of US GAAP rules as more fully described below.
This was due to deficiencies that existed in the design or operation of our
internal controls over financial reporting that adversely affected our
internal controls and that may be considered to be material weaknesses.
The matters involving internal controls and procedures that our management
considered to be material weaknesses under the standards of the Public
Company Accounting Oversight Board were: (1) lack of a functioning audit
committee resulting in ineffective oversight in the establishment and
monitoring of required internal controls and procedures; (2) inadequate
segregation of duties consistent with control objectives; and (3) ineffective
controls over period end financial disclosure and reporting processes. The
aforementioned material weaknesses were identified by our President in
connection with the review of our financial statements as of July 31, 2008.
31
Management believes that the material weaknesses set forth in items (2) and
(3) above did not have an effect on our financial results. However,
management believes that the lack of a functioning audit committee resulted in
ineffective oversight in the establishment and monitoring of required
internal controls and procedures, which could result in a material
misstatement in our financial statements in future periods.
This annual report does not include an attestation report of the
Corporation's registered public accounting firm regarding internal control
over financial reporting. Management's report was not subject to attestation
by the Corporation's registered public accounting firm pursuant to temporary
rules of the SEC that permit the Corporation to provide only the management's
report in this annual report.
Management's Remediation Initiatives
- ------------------------------------
In an effort to remediate the identified material weaknesses and other
deficiencies and enhance our internal controls, we have initiated, or plan to
initiate, the following series of measures:
We will create a position to segregate duties consistent with control
objectives and will increase our personnel resources and technical accounting
expertise within the accounting function when funds are available to us.
And, on August 28, 2008, we appointed outside directors to our board of
directors who shall appoint an audit committee resulting in a fully
functioning audit committee who will undertake the oversight in the
establishment and monitoring of required internal controls and procedures
such as reviewing and approving estimates and assumptions made by management
when funds are available to us.
Management believes that the appointment of the outside directors, who shall
appoint a fully functioning audit committee, will remedy the lack of a
functioning audit committee.
We anticipate that these initiatives will be at least partially, if not
fully, implemented by July 31, 2009. Additionally, we plan to test our
updated controls and remediate our deficiencies by July 31, 2009.
Changes in internal controls over financial reporting
- -----------------------------------------------------
There was no change in our internal controls over financial reporting that
occurred during the period covered by this report, that has materially
affected, or is reasonably likely to materially affect, our internal controls
over financial reporting.
Item 9B. Other Information.
None.
32
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The following table sets forth certain information regarding our current
directors and executive officers. Our executive officers serve one-year
terms.
Name Age Position Appointed
- -------------------- --- ------------------ ------------------
Marvin S. Hausman, M.D. 67 Chairman/CEO August 28, 2008
Frank Arnone 61 Director/President July 19, 2007
Phil A. Sobol MD 54 Director August 28, 2008
Elliot A. Shelton Esq. 58 Director August 28, 2008
- ------------------------------------------------------------------------------
Biography of Marvin S. Hausman MD, Chairman and CEO
- ----------------------------------------------------
Dr. Hausman received his MD degree from New York University School of
Medicine in 1967 and is a Board Certified Urological Surgeon. He has 30
years of drug development and clinical care experience at various
pharmaceutical companies, including working in conjunction with Bristol-Myers
International, Mead-Johnson Pharmaceutical Co., and E.R. Squibb.
Dr. Hausman has recently resigned as President, Chief Executive Officer,
Acting Principal Accounting and Financial Officer and Chairman of the Board
of Oxis International, Inc. and remains a director. Dr. Hausman served as a
director and as Chairman of the Board of Axonyx from 1997 until the merger of
Axonyx into Torrey Pines Therapeutics in October 2006, and had served as
President and Chief Executive Officer of Axonyx from 1997 until September
2003 and March 2005, respectively. Dr. Hausman was a co-founder of Medco
Research Inc., a pharmaceutical biotechnology company specializing in
adenosine products which was subsequently acquired by King Pharmaceuticals.
He has also served as a director of Arbios Technologies, Los Angeles, CA from
2003-2005 and of Regent Assisted Living, Inc., Portland, OR, from 1996-2001.
Dr. Hausman has done residencies in General Surgery at Mt. Sinai Hospital in
New York, and in Urological Surgery at U.C.L.A. Medical Center in Los
Angeles. He also worked as a Research Associate at the National Institutes of
Health, Bethesda, Maryland. He has been a Lecturer, Clinical Instructor and
Attending Surgeon at the U.C.L.A. Medical Center Division of Urology and
Cedars-Sinai Medical Center, Los Angeles. He has been a Consultant on
Clinical/ Pharmaceutical Research to various pharmaceutical companies,
including Bristol-Meyers International, Mead-Johnson Pharmaceutical Company,
Medco Research, Inc., and E.R. Squibb.
33
Dr. Hausman is President of Northwest Medical Research Partners, Inc. a firm
specializing in the identification and acquisition of breakthrough
pharmaceutical and nutraceutical products and which has assigned certain
intellectual property to the Company in consideration for 3,500,000 shares of
the Company's common stock. He is also a scientific consultant to Golden
Gourmet Mushrooms of San Marcos, CA, and has developed a novel product called
Mushroom Matrix, a potent natural organic antioxidant mushroom complex for
use in humans and animals.
Biography of Frank Arnone, President and Director
- -------------------------------------------------
Frank Arnone received his Bachelor of Arts in Marketing from Long Island
University in 1972. He has over 25 years of experience in consumer marketing
at various restaurant companies at both the regional and national level.
While working in this industry his emphasis was on brand development,
research and design of new products and the implementation of advertising and
media planning.
He is the founder and president of Sir Toms Tobacco Emporium a small retail
chain which focuses' on specialty products for the male consumer.
Biography of Philip A. Sobol, M.D., Director
- --------------------------------------------
Dr. Sobol is a practicing Orthopedic Surgeon who is the managing director of
Sobol Orthopedic Medical Group, Inc., of Southern California. Dr. Sobol is
certified by the American Board of Orthopedic Surgery and a Fellow of the
American Academy of Orthopedic Surgery. Dr. Sobol currently serves as a
director of Duska Therapeutics, Inc. Since 2004 he has been a member of
S&B Surgery Center Board of Directors, and from 1984 until 1993 he was an
Assistant Clinical Professor at the University of Southern California. Dr.
Sobol received his BA degree from the University of Rochester, Rochester, New
York and a Medical Doctorate degree from the University of Southern
California, Los Angeles, California.
Biography of Elliot L. Shelton, Director
- ----------------------------------------
Mr. Shelton received his law degree from Pepperdine University in 1975 and from
1975 until the present has practiced law in the State of California. He has
been Of Counsel, from September 1998 to date, to Fenigstein and Kaufman, a
Professional Corporation, and the President of Elliot L. Shelton, a
Professional Corporation. From 1999 to the present, he has been President and
Director of the Assisted Living foundation of America, a non-profit
corporation. Mr. Shelton has worked as a partner in several law firms,
including Mitchell, Silberberg & Knupp, Shea & Gould and, Gold, Marks, Ring &
Pepper.
34
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires our executive officers and directors, and persons
who beneficially own more than ten percent of our common stock, to file
initial reports of ownership and reports of changes in ownership with the
SEC. Executive officers, directors and greater than ten percent beneficial
owners are required by SEC regulations to furnish us with copies of all
Section 16(a) forms they file. Based upon a review of the copies of such
forms furnished to us and written representations from our executive officers
and directors, we believe that as of the date of this report they were not
current in his 16(a) reports.
Board of Directors
- ------------------
Our board of directors currently consists of: Marvin S. Hausman, M.D., Frank
Arnone, Phil A. Sobol M.D. and Elliot A. Shelton Esq.. Our directors serve
one-year terms.
Audit Committee
- ---------------
The company does not presently have an Audit Committee. No qualified
financial expert has been hired because the company is too small to afford
such expense.
Code of Ethics
- --------------
We have not adopted a Code of Ethics for the Board and any salaried
employees.
Limitation of Liability of Directors
- ------------------------------------
Pursuant to the Nevada General Corporation Law, our Articles of Incorporation
exclude personal liability for our Directors for monetary damages based upon
any violation of their fiduciary duties as Directors, except as to liability
for any breach of the duty of loyalty, acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, or any
transaction from which a Director receives an improper personal benefit. This
exclusion of liability does not limit any right which a Director may have to
be indemnified and does not affect any Director's liability under federal or
applicable state securities laws. We have agreed to indemnify our directors
against expenses, judgments, and amounts paid in settlement in connection
with any claim against a Director if he acted in good faith and in a manner
he believed to be in our best interests.
35
Nevada Anti-Takeover Law and Charter and By-law Provisions
- ----------------------------------------------------------
The anti-takeover provisions of Sections 78.411 through 78.445 of the Nevada
Corporation Law apply to Total Nutraceutical Solutions. Section 78.438 of
the Nevada law prohibits the Company from merging with or selling more than
5% of our assets or stock to any shareholder who owns or owned more than 10%
of any stock or any entity related to a 10% shareholder for three years after
the date on which the shareholder acquired the Total Nutraceutical Solutions
shares, unless the transaction is approved by Total Nutraceutical Solutions'
Board of Directors. The provisions also prohibit the Company from completing
any of the transactions described in the preceding sentence with a 10%
shareholder who has held the shares more than three years and its related
entities unless the transaction is approved by our Board of Directors or a
majority of our shares, other than shares owned by that 10% shareholder or
any related entity. These provisions could delay, defer or prevent a change
in control of Total Nutraceutical Solutions.
Item 11. Executive Compensation.
The following table sets forth summary compensation information for the
fiscal year ended July 31, 2008 for our Chief Executive Officer, who was
appointed on August 14, 2006. We did not have any executive officers as of
the year end of July 31, 2008 who received any compensation.
Compensation
- ------------
As a result of the Company's current limited available cash, no officer
or director received compensation since July 19, 2007 (inception) of the
company through the fiscal years ending July 31, 2008 and July 31, 2007.
We intend to pay salaries when cash flow permits.
Summary Compensation Table
- --------------------------
All
Fiscal Other
Year Compen-
Ending Salary Bonus Awards sation Total
Name and Principal Position July 31 ($) ($) ($) ($) ($)
- ----------------------------------------------------------------------------
Frank Arnone CEO/Dir. 2008 -0- -0- -0- -0- -0-
2007 -0- -0- -0- -0- -0-
36
We do not have any employment agreements with our officers/directors. We do
not maintain key-man life insurance for any our executive officers/directors.
We do not have any long-term compensation plans or stock option plans.
Stock Option Grants
- -------------------
We did not grant any stock options to the executive officers or directors
from inception through fiscal year end July 31, 2008.
Outstanding Equity Awards at Fiscal Year-Ending July 31, 2008
- -------------------------------------------------------------
We did not have any outstanding equity awards as of July 31, 2008.
Option Exercises for Fiscal Year-Ending July 31, 2008
- -----------------------------------------------------
There were no options exercised by our named executive officer in
fiscal year ending July 31, 2008.
Potential Payments Upon Termination or Change in Control
- --------------------------------------------------------
We have not entered into any compensatory plans or arrangements with respect
to our named executive officer, which would in any way result in payments to
such officer because of his resignation, retirement, or other termination of
employment with us or our subsidiaries, or any change in control of, or a
change in his responsibilities following a change in control.
Director Compensation
- ---------------------
We did not pay our directors any compensation during fiscal years ending
July 31, 2008 or July 31, 2007.
37
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
The following table presents information, to the best of our knowledge, about
the ownership of our common stock on October 27, 2008 relating to those
persons known to beneficially own more than 5% of our capital stock and by
our named executive officers and directors. The percentage of beneficial
ownership for the following table is based on 55,923,750 shares of common
stock outstanding.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and does not necessarily indicate
beneficial ownership for any other purpose. Under these rules, beneficial
ownership includes those shares of common stock over which the stockholder
has sole or shared voting or investment power. It also includes shares of
common stock that the stockholder has a right to acquire within 60 days after
October 27, 2008 pursuant to options, warrants, conversion privileges or
other right. The percentage ownership of the outstanding common stock,
however, is based on the assumption, expressly required by the rules of the
Securities and Exchange Commission, that only the person or entity whose
ownership is being reported has converted options or warrants into shares of
Total Nutraceutical Solutions' common stock.
Amount
Title Name and Address of shares Percent
of of Beneficial held by of
Class Owner of Shares Position Owner Class(1)
- ----------------------------------------------------------------------------
Common Marvin S. Hausman, M.D. Chairman/CEO 20,000,000 (2) 35.7%
Common Frank Arnone Pres./Director 500,000 0.9%
Common Phil A. Sobol, MD Director 500,000 (3) 0.9%
Common Elliot A. Shelton, Esq. Director 2,000,000 (4) 3.6%
- ---------------------------------------------------------------------------
All Executive Officers, Directors
as a Group (4 persons ) 23,000,000 41.1%
(1) Such figures are based upon 55,923,750 shares of our common stock
outstanding as of October 27, 2008. Except as otherwise noted in these
footnotes, the nature of beneficial ownership for shares reported in this
table is sole voting and investment power.
(2) This number does not include 3,500,000 common shares owned by the children
of Marvin S. Hausman, M.D.
(3) This number does not include 500,000 common shares owned by the Philip and
Debra Sobol Trust.
(4) This number does not include 500,000 common shares of common stock owned
by the wife of Elliot A. Shelton, Esq.
38
We are not aware of any arrangements that may result in "changes in control"
as that term is defined by the provisions of Item 403(c) of Regulation S-B.
We believe that all persons named have full voting and investment power with
respect to the shares indicated, unless otherwise noted in the table. Under
the rules of the Securities and Exchange Commission, a person (or group of
persons) is deemed to be a "beneficial owner" of a security if he or she,
directly or indirectly, has or shares the power to vote or to direct the
voting of such security, or the power to dispose of or to direct the
disposition of such security. Accordingly, more than one person may be deemed
to be a beneficial owner of the same security. A person is also deemed to be
a beneficial owner of any security, which that person has the right to
acquire within 60 days, such as options or warrants to purchase our common
stock.
Item 13. Certain Relationships and Related Transactions, and Director
Independence.
The company's President has contributed office space for our use. There is
no charge to us for the space. Our officer will not seek reimbursement for
past office expenses.
Through a Board Resolution, the Company hired the professional services of
Moore & Associates, Chartered, Certified Public Accountants, to perform
audited financials for the Company. Moore & Associates, Chartered own no
stock in the Company. The company has no formal contracts with its
accountants, they are paid on a fee for service basis.
The company has acquired from Northwest Medical Research Partners
Inc., which is controlled by Marvin S. Hausman, M.D., the newly appointed
director and CEO of the Company, in exchange for 3.5 million shares of common
restricted stock, an Assignment and Assumption Agreement, effective July 31,
2008, pursuant to which the Company has assumed the obligations of NW
Research Partners to maintain the patent prosecution associated with the
intellectual property and has an option to license from Pennsylvania State
University the technologies associated with the intellectual property.
39
Item 14. Principal Accountant Fees and Services.
Moore & Associates, Chartered served as our principal independent public
accountants for fiscal years ending July 31, 2008 and July 31, 2007.
Aggregate fees billed to us for the years ended July 31, 2008 and 2007 by
Moore & Associates were as follows:
For the Years Ended
July 31,
-------------------
2008 2007
-------------------
(1) Audit Fees(1) $3,000 $1,000
(2) Audit-Related Fees $3,000 $1,000
(3) Tax Fees -0- -0-
(4) All Other Fees -0- -0-
Total fees paid or accrued to our principal accountant
(1) Audit Fees include fees billed and expected to be billed for services
performed to comply with Generally Accepted Auditing Standards (GAAS),
including the recurring audit of the Company's financial statements for such
period included in this Annual Report on Form 10-K and for the reviews of the
quarterly financial statements included in the Quarterly Reports on Form 10-
QSB filed with the Securities and Exchange Commission.
Audit Committee Policies and Procedures
- ---------------------------------------
We do not have an audit committee; therefore our President pre-approves
all services to be provided to us by our independent auditor. This process
involves obtaining (i) a written description of the proposed services, (ii)
the confirmation of our Principal Accounting Officer that the services are
compatible with maintaining specific principles relating to independence, and
(iii) confirmation from our securities counsel that the services are not
among those that our independent auditors have been prohibited from
performing under SEC rules. Our director(s) then makes a determination to
approve or disapprove the engagement of Moore & Associates for the proposed
services. In the fiscal year ending July 31, 2008, all fees paid to Moore &
Associates were unanimously pre-approved in accordance with this policy.
Less than 50 percent of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most recent
fiscal year were attributed to work performed by persons other than the
principal accountant's full-time, permanent employees.
40
PART IV
Item 15. Exhibits, Financial Statement Schedules.
The following information required under this item is filed as part of
this report:
(a) 1. Financial Statements
Page
----
Management's Report on Internal Control Over Financial Reporting 28
Report of Independent Registered Public Accounting Firm F-1
Balance Sheets F-2
Statements of Operations F-3
Statements of Stockholders' Equity F-4
Statements of Cash Flows F-5
(b) 2. Financial Statement Schedules
None.
41
(c) 3. Exhibit Index
Incorporated by reference
-------------------------
Filed Period Filing
Exhibit Exhibit Description herewith Form ending Exhibit date
- -------------------------------------------------------------------------------
3.1 Articles of Incorporation, SB-2 3.1 08/06/2007
as currently in effect
- -------------------------------------------------------------------------------
3.2 Bylaws SB-2 3.2 08/06/2007
as currently in effect
- -------------------------------------------------------------------------------
3.3 Amended Articles of Merger 8-K 3.3 10/13/2008
Incorporation as currently
in effect
- -------------------------------------------------------------------------------
10.1 Exclusive Option Agreement 8-K 10.1 09/04/2008
dated May 1, 2006, between
The Penn State Research
Foundation and Northwest
Medical Research Inc.
- -------------------------------------------------------------------------------
10.2 Assignment Agreement to the 8-K 10.2 09/04/2008
Option Agreement, dated
July 31, 2008, among The Penn
State Research Foundation,
Northwest Medical Research Inc.
and Generic Marketing
Services, Inc.
- -------------------------------------------------------------------------------
10.3 Assignment and Assumption 8-K 10.3 09/04/2008
Agreement, dated July 31, 2008,
between Northwest Medical
Research Inc. and Generic
Marketing Services, Inc.
- -------------------------------------------------------------------------------
23.1 Consent Letter from Moore X
and Associates Chartered
- -------------------------------------------------------------------------------
31.1 Certification of President X
and Principal Financial
Officer, pursuant to Section
302 of the Sarbanes-Oxley
Act
- -------------------------------------------------------------------------------
31.2 Certification of President X
and Principal Financial
Officer, pursuant to Section
906 of the Sarbanes-Oxley
Act
- -------------------------------------------------------------------------------
42
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Total Nutraceutical Solutions
Formerly known as
Generic Marketing Solutions, Inc.
- ----------------------------------
Registrant
By: /s/ Frank Arnone
----------------
Frank Arnone
President
Date: October 27, 2008
------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
following persons on behalf of the Registrant and in the capacities and on
the dates indicated have signed this report below.
Name
By: /s/ Frank Arnone
--------------------------------
Frank Arnone
President, Secretary,
Treasurer and Director
(Principal Executive,
Principal Financial and
Principal Accounting Officer)
Date: October 27, 2008
------------------
43