**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-Q**

 

| [X]

Quarterly report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2010.

 

 

[  ]

Transition report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from _______ to _______.

**000-52864**

(Commission file number)

 

**Total Nutraceutical Solutions, Inc.**

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

**Nevada**

**26-0561199**

(State or other jurisdiction

(IRS Employer

of incorporation or organization)

Identification No.)

 

**PO Box 910, Stevenson, WA 98648**

 (Address of principal executive offices)

**(509) 427-5132**

 (Registrant’s telephone number)

__________________________

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes [X]  No [  ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [  ]

Accelerated filer [  ] 

Non-accelerated filer [  ] 

Smaller reporting company [X]

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

On May 20, 2010, 52,012,470 shares of the registrant's common stock, par value $.001 per share, were outstanding.

 

**TABLE OF CONTENTS**

PART I – FINANCIAL INFORMATION

 

**3**

**Item 1.**

**Financial Statements**

 

**3**

**Item 2.**

**Management’s Discussion and Analysis of Financial Condition and Results of Operations**

 

**21**

**Item 3.**

**Quantitative and Qualitative Disclosures About Market Risk**

 

**23**

**Item 4.**

**Controls and Procedures**

 

**23**

PART II – OTHER INFORMATION

 

**23**

**Item 1.**

**Legal Proceedings**

 

**23**

**Item 1A.**

**Risk Factors**

 

**24**

**Item 2.**

**Unregistered Sales of Equity Securities and Use of Proceeds**

 

**24**

**Item 3.**

**Defaults Upon Senior Securities**

 

**24**

**Item 4.**

**Submission of Matters to a Vote of Security Holders**

 

**24**

**Item 5.**

**Other Information**

 

**24**

**Item 6.**

**Exhibits**

 

**25**

SIGNATURES

 

 

**26**

 

- 2 -

**PART I – FINANCIAL INFORMATION**

**Item1. Financial Statements**

Total Nutraceutical Solutions, Inc.

March 31, 2010 and 2009

Index to Financial Statements 

Contents                                                                                                                                                                                 Page(s)

Balance Sheets at March 31, 2010  (Unaudited) and December 31, 2009 

4

Statements of Operations for the Three Months Ended March 31, 2010 and 2009 (Unaudited)

5

Statement of Stockholders’ Equity for the Interim Period Ended March 31, 2010 (Unaudited)

6

Statements of Cash Flows for the Three Months Ended March 31, 2010 and 2009 (Unaudited)

7  

Notes to the Financial Statements (Unaudited)

8-20

- 3 -

**TOTAL NUTRACEUTICAL SOLUTIONS, INC.**

** BALANCE SHEETS**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2010

 

 

December 31, 2009

 

 

 

 

 

 

(Unaudited)

 

 

 

** Assets**

 

 

 

 

 

 

 

** Current Assets**

 

 

 

 

 

 

 

 Cash 

 

 

$ 

266,279 

 

$ 

48,141 

 

 Accounts receivable 

 

 

2,961 

 

 

3,362 

 

 Inventory 

 

 

375,249 

 

 

342,253 

 

 Prepaid expenses 

 

 

70,686 

 

 

31,418 

 

 Current maturities of lease receivable 

 

 

11,328 

 

 

11,328 

 

 Notes receivable 

 

 

12,500 

 

 

- 

 

 Other current assets 

 

 

50,581 

 

 

- 

 

 

** Total Current Assets**

 

 

789,584 

 

 

436,502 

 

 

 

 

 

 

 

 

 

 

** Property and Equipment**

 

 

 

 

 

 

 

 Property and equipment 

 

 

32,044 

 

 

20,712 

 

 Accumulated depreciation 

 

 

(4,016)

 

 

(2,290)

 

 

** Property and Equipment, net**

 

 

28,028 

 

 

18,422 

 

 

 

 

 

 

 

 

 

 

** Patents acquired and patents pending**

 

 

52,580 

 

 

35,984 

 

 

 

 

 

 

 

 

 

 

** Lease receivable, net of current maturities**

 

 

11,508 

 

 

12,237 

 

 

 

 

 

 

 

 

 

 

** Total Assets**

 

$ 

881,700 

 

$ 

503,145 

 

 

 

 

 

 

 

 

 

 

** Liabilities and Stockholders' Equity**

 

 

 

 

 

 

** Current Liabilities:**

 

 

 

 

 

 

 

 Accounts payable 

 

$ 

178,865 

 

$ 

111,347 

 

 Accrued expenses - officer 

 

 

26,000 

 

 

10,000 

 

 Note payable, net of discount 

 

 

23,077 

 

 

- 

 

 Note payable 

 

 

10,507 

 

 

16,703 

 

 

** Total Current Liabilities**

 

 

238,449 

 

 

138,050 

 

 

 

 

 

 

 

 

 

 

** Long Term Liabilities:**

 

 

 

 

 

 

 

 Convertible notes payable - related party, net of discount 

 

6,250 

 

 

- 

 

 Convertible notes payable, net of discount 

 

 

154,000 

 

 

- 

 

 

** Total Long Term Liabilities**

 

 

160,250 

 

 

- 

 

 

 

 

 

 

 

 

 

 

** Total Liabilities**

 

 

398,699 

 

 

138,050 

 

 

 

 

 

 

 

 

 

 

** Stockholders' Equity**

 

 

 

 

 

 

 

 Preferred stock, $.001 par value, 5,000,000 shares authorized, 

 

 

 

 

 

 

 

 none issued or outstanding 

 

 

- 

 

 

- 

 

 Common stock, $.001 par value, 70,000,000 shares authorized, 

 

 

 

 

 

 

 

 52,012,470 shares issued and outstanding 

 

 

52,013 

 

 

52,013 

 

 Additional paid-in capital 

 

 

1,572,759 

 

 

1,148,009 

 

 Deferred compensation 

 

 

(25,312)

 

 

(20,303)

 

 Accumulated deficit  

 

 

(1,116,459)

 

 

(814,624)

 

 

** Total Stockholders' Equity**

 

 

483,001 

 

 

365,095 

 

 

 

 

 

 

 

 

 

 

** Total Liabilities and Stockholders' Equity**

 

$ 

881,700 

 

$ 

503,145 

 

 

 

 

 

 

 

 

 

 

* See accompanying notes to the financial statements.*

- 4 -

**TOTAL NUTRACEUTICAL SOLUTIONS, INC.**

** STATEMENTS OF OPERATIONS**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months

 

 

Three Months

 

 

 

 

 

 

Ending

 

 

Ending

 

 

 

 

 

 

March 31, 2010

 

 

March 31, 2009

 

 

 

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 REVENUES 

 

$ 

24,898 

 

$ 

- 

 

 

 

 

 

 

 

 

 

 

 

 COST OF GOODS SOLD  

 

 

19,506 

 

 

- 

 

 

 

 

 

 

 

 

 

 

 

 GROSS PROFIT 

 

 

5,392 

 

 

- 

 

 

 

 

 

 

 

 

 

 

 

 OPERATING EXPENSES 

 

 

 

 

 

 

 

 

 Advertising and promotion 

 

 

91,850 

 

 

11,395 

 

 

 Sales commissions 

 

 

9,965 

 

 

- 

 

 

 Consulting fees 

 

 

46,242 

 

 

58,072 

 

 

 Consulting fee - officer 

 

 

30,000 

 

 

- 

 

 

 General and administrative 

 

 

86,531 

 

 

80,998 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Total Operating Expenses 

 

 

264,588 

 

 

150,465 

 

 

 

 

 

 

 

 

 

 

 

 LOSS FROM OPERATIONS 

 

 

(259,196)

 

 

(150,465)

 

 

 

 

 

 

 

 

 

 

 

 OTHER (INCOME) EXPENSES 

 

 

 

 

 

 

 

 

 Interest income 

 

 

(277)

 

 

(883)

 

 

 Interest expense 

 

 

42,916 

 

 

- 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Total Other (income) Expense 

 

 

42,639 

 

 

(883)

 

 

 

 

 

 

 

 

 

 

 

 LOSS BEFORE TAXES  

 

 

(301,835)

 

 

(149,582)

 

 

 

 

 

 

 

 

 

 

 

  INCOME TAXES  

 

 

- 

 

 

- 

 

 

 

 

 

 

 

 

 

 

 

 NET LOSS 

 

$ 

(301,835)

 

$ 

(149,582)

 

 

 

 

 

 

 

 

 

 

 

 NET LOSS PER COMMON SHARE 

 

 

 

 

 

 

 

 

  - BASIC AND DILUTED: 

 

$ 

(0.01)

 

$ 

(0.00)

 

 

 

 

 

 

 

 

 

 

 

 

 Weighted common shares outstanding 

 

 

 

 

 

 

 

 

 

  - basic and diluted 

 

 

52,012,470 

 

 

50,107,323 

 

 

 

 

 

 

 

 

 

 

 

* See accompanying notes to the financial statements.*

- 5 -

**TOTAL NUTRACEUTICAL SOLUTIONS, INC.**

** STATEMENT OF STOCKHOLDERS' EQUITY  **

** FOR THE INTERIM PERIOD ENDED MARCH 31, 2010**

** (UNAUDITED)**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

Stock

 

 

Par

 

 

Paid

 

 

Deferred 

 

 

Accumulated 

 

 

Stockholders'

 

 

 

 

 

 

Shares

 

 

Value

 

 

In Capital

 

 

Compensation

 

 

Deficit

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

** Balance - December 31, 2008**

 

 

49,673,750 

 

$ 

49,674 

 

$ 

510,776 

 

$ 

- 

 

$ 

(120,170)

 

$ 

440,280 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Shares issued for cash in February 2009, 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 net of offering costs of $15,000 

 

600,000 

 

 

600 

 

 

104,430 

 

 

 

 

 

 

 

 

105,030 

 

 Warrants issued in connection with the 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 sale of common shares in February 2009 

 

 

 

 

 

 

 

29,970 

 

 

 

 

 

 

 

 

29,970 

 

 Issuance of warrants for future services in Feburary 2009 

 

 

 

 

 

8,360 

 

 

(8,360)

 

 

 

 

 

- 

 

 Issuance of warrants for future services in April 2009 

 

 

 

 

 

 

 

8,530 

 

 

(8,530)

 

 

 

 

 

- 

 

 Shares issued for agreement in March 2009 

 

720 

 

 

1 

 

 

179 

 

 

 

 

 

 

 

 

180 

 

 Shares issued for cash in June 2009, 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 net of offering costs of $47,068 

 

1,638,000 

 

 

1,638 

 

 

265,112 

 

 

 

 

 

 

 

 

266,750 

 

 Warrants issued in connection with the 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 sale of common shares in June 2009 

 

 

 

 

 

 

 

95,682 

 

 

 

 

 

 

 

 

95,682 

 

 Issuance of warrants for future services in July 2009 

 

 

 

 

 

 

 

21,250 

 

 

(21,250)

 

 

 

 

 

- 

 

 Issuance of warrants for future services in September 2009 

 

 

 

 

 

4,250 

 

 

(4,250)

 

 

 

 

 

- 

 

 Shares issued for cash in September 2009 

 

100,000 

 

 

100 

 

 

24,900 

 

 

 

 

 

 

 

 

25,000 

 

 Warrants issued for future services in October 2009 

 

 

 

 

 

 

 

9,570 

 

 

(9,570)

 

 

 

 

 

- 

 

 Warrants issued for future services in December 2009 

 

 

 

 

 

 

 

15,000 

 

 

(7,500)

 

 

 

 

 

7,500 

 

 Issuance of warrants in connection  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 with convertible note payable in December 2009 

 

 

 

 

 

 

 

22,200 

 

 

 

 

 

 

 

 

22,200 

 

 Beneficial conversion feature in connection  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 with convertible note payable in December 2009 

 

 

 

 

 

 

 

27,800 

 

 

 

 

 

 

 

 

27,800 

 

 Amortization of deferred compensation 

 

 

 

 

 

 

 

 

 

 

39,157 

 

 

 

 

 

39,157 

 

 Net loss 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(694,454)

 

 

(694,454)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

** Balance - December 31, 2009**

 

 

52,012,470 

 

 

52,013 

 

 

1,148,009 

 

 

(20,303)

 

 

(814,624)

 

 

365,095 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Issuance of warrants in connection with short-term 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 convertible note payable issued in January 2010 

 

 

 

 

 

 

 

49,200 

 

 

 

 

 

 

 

 

49,200 

 

 Beneficial conversion feature in connection with short-term 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 convertible note payable issued in January 2010 

 

 

 

 

 

 

 

50,800 

 

 

 

 

 

 

 

 

50,800 

 

 Issuance of warrants in connection with 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 convertible note payable issued in February 2010 

 

 

 

 

 

 

 

74,550 

 

 

 

 

 

 

 

 

74,550 

 

 Beneficial conversion feature in connection with 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 convertible note payable issued in February 2010 

 

 

 

 

 

 

 

75,450 

 

 

 

 

 

 

 

 

75,450 

 

 Issuance of warrants in connection with 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 convertible note payable issued in March 2010 

 

 

 

 

 

 

 

78,000 

 

 

 

 

 

 

 

 

78,000 

 

 Beneficial conversion feature in connection with 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 convertible note payable issued in March 2010 

 

 

 

 

 

 

 

78,000 

 

 

 

 

 

 

 

 

78,000 

 

 Issuance of warrants for future services  

 

 

 

 

 

 

 

18,750 

 

 

(18,750)

 

 

 

 

 

- 

 

 Amortization of deferred compensation 

 

 

 

 

 

 

 

 

 

 

13,741 

 

 

 

 

 

13,741 

 

 Net loss 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(301,835)

 

 

(301,835)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

** Balance - March 31, 2010**

 

 

52,012,470 

 

$ 

52,013 

 

$ 

1,572,759 

 

$ 

(25,312)

 

$ 

(1,116,459)

 

$ 

483,001 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* See accompanying notes to the financial statements.*

- 6 -

**TOTAL NUTRACEUTICAL SOLUTIONS, INC.**

**STATEMENTS OF CASH FLOWS**

 

 

 

 

 

 

 

 

 

 

 

 

Three Months

 

 

Three Months

 

 

 

 

 

 

 

 

 

 

 

 

 

Ended

 

 

Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2010

 

 

March 31, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 CASH FLOWS FROM OPERATING ACTIVITIES: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Net loss 

 

 

 

 

 

 

 

 

$

(301,835)

 

$

(149,582)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 Depreciation 

 

 

 

 

 

 

 

 

 

1,726 

 

 

78 

 

 

 Amortization of discount on short-term convertible note payable 

 

 

 

23,077 

 

 

- 

 

 

 Amortization of discount on convertible notes payable - related parties 

6,250 

 

 

- 

 

 

 Amortization of discount on convertible notes payable 

10,000 

 

 

- 

 

 

 Stock-based compensation 

 

 

 

 

 

 

 

 

 

13,741 

 

 

1,700 

 

 

 Changes in operating assets and liabilities: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Accounts receivable 

 

 

 

 

 

 

 

 

 

401 

 

 

- 

 

 

 

 Inventory 

 

 

 

 

 

 

 

 

 

(32,996)

 

 

- 

 

 

 

 Prepaid expenses 

 

 

 

 

 

 

 

 

 

(39,268)

 

 

6,963 

 

 

 

 Other current assets 

 

 

 

 

 

 

 

 

 

(50,581)

 

 

(675)

 

 

 

 Accounts payable 

 

 

 

 

 

 

 

 

 

67,518 

 

 

26,537 

 

 

 

 Related party payable 

 

 

 

 

 

 

 

 

 

16,000 

 

 

(14,120)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 NET CASH USED IN OPERATING ACTIVITIES 

 

 

 

 

 

 

 

 

 

(285,967)

 

 

(129,099)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 CASH FLOWS FROM INVESTING ACTIVITIES: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Note receivable 

 

 

 

 

 

 

 

 

 

(12,500)

 

 

(135,000)

 

 

 Purchase of furniture and equipment 

 

 

 

 

 

 

 

 

 

(11,332)

 

 

(2,795)

 

 

 Patents acquired and patents pending 

 

 

 

 

 

 

 

 

 

(16,596)

 

 

- 

 

 

 Lease receivable 

 

 

 

 

 

 

 

 

 

- 

 

 

(30,321)

 

 

 Payment of lease receivable 

 

 

 

 

 

 

 

 

 

729 

 

 

- 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 NET CASH USED IN INVESTING ACTIVITIES 

 

 

 

 

 

 

 

 

 

(39,699)

 

 

(168,116)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 CASH FLOWS FROM FINANCING ACTIVITIES: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Proceeds from convertible notes payable 

 

 

 

 

 

 

 

 

 

100,000 

 

 

- 

 

 

 Repayment of note payable 

 

 

 

 

 

 

 

 

 

(6,196)

 

 

(6,116)

 

 

 Proceeds from convertible notes payable 

 

 

 

 

 

 

 

 

 

450,000 

 

 

- 

 

 

 Proceeds from sale of common stock, net of offering cost 

- 

 

 

135,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 NET CASH PROVIDED BY FINANCING ACTIVITIES 

 

 

 

 

 

 

 

 

 

543,804 

 

 

128,884 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 NET CHANGE IN CASH 

 

 

 

 

 

 

 

 

 

218,138 

 

 

(168,331)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Cash at beginning of period 

 

 

 

 

 

 

 

 

 

48,141 

 

 

273,171 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Cash at end of period 

 

 

 

 

 

 

 

 

$

266,279 

 

$

104,840 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: 

 

 

 

 

 

 

 

 

 

 Interest paid 

 

 

 

 

 

 

 

 

$

464 

 

$

243 

 

 

 Taxes paid 

 

 

 

 

 

 

 

 

$

- 

 

$

- 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 SUPPLEMENTAL DISCLOSURE OF NONCASH FLOWS FINANCING 

 

 

 

 

 

 

 

 

 AND INVESTING ACTIVITIED: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Warrants issued for future services 

 

 

 

 

 

 

 

 

$

18,750 

 

$

- 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* See accompanying notes to the financial statements.*

- 7 -

Total Nutraceutical Solutions, Inc.

March 31, 2010 and 2009

Notes to the Financial Statements

(Unaudited)

**NOTE 1 - ORGANIZATION AND OPERATIONS**

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

**NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

*Basis of presentation*

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

*Use of estimates*

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

*Fiscal year end*

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

*Cash equivalents*

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

*Accounts receivable*

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

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

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

- 8 -

*Inventory*

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

*Property and equipment*

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

*Patents acquired and patents pending*

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

*Impairment of long-lived assets*

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

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

*Lease receivable*

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

*Discount on convertible notes payable*

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

- 9 -

recorded as a discount to the convertible notes payable. The beneficial conversion feature discount needs to be amortized using the effective interest method over the life of the debt instruments.  

*Fair value of financial instruments*

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

Level 1

 

Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

 

 

 

Level 2

 

Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

 

 

 

Level 3

 

Pricing inputs that are generally observable inputs and not corroborated by market data.

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

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

*Revenue recognition*

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

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

*Shipping and handling costs*

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

*Advertising costs*

Advertising costs are expensed as incurred.

- 10 -

*Research and development*

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

*Foreign currency transactions*

 

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

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

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

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

·

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

·

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

·

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

·

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

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

 

- 11 -

*Income taxes*

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

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

*Commitments and contingencies*

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

*Net loss per common share*

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

The following table shows the weighted-average number of potentially outstanding dilutive shares excluded from the diluted net loss per share calculation for the interim periods ended March 31, 2010 and 2009 as they were anti-dilutive.

- 12 -

 

 

 

 

Weighted average number of 

potentially outstanding dilutive shares

 

 

 

 

 

 

 

 

 

For the Interim Period Ended

March 31, 2010

 

 

For the Interim Period Ended

March 31, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants issued, exercisable and outstanding in connection with the sale of common stock from August 2008 through October 2008

 

 

 

 

 

 

 

 

 

2,650,000 

 

 

 

2,650,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants issued, exercisable and outstanding in connection with the sale of common stock on February 3, 2009 

 

 

 

 

 

 

 

 

 

660,000 

 

 

 

660,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants issued, exercisable and outstanding as compensation on February 3, 2009

 

 

 

 

 

 

 

 

 

50,000 

 

 

 

50,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants issued, exercisable and outstanding as compensation on April 1, 2009 

 

 

 

 

 

 

 

 

 

50,000 

 

 

 

- 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants issued, exercisable and outstanding in connection with the sale of common stock June 9, 2009

 

 

 

 

 

 

 

 

 

1,801,800 

 

 

 

- 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants issued, exercisable and outstanding as compensation from June 2009 to September 2009

 

 

 

 

 

 

 

 

 

150,000 

 

 

 

- 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants issued, exercisable and outstanding as compensation on October 1, 2009, December 31, 2009

 

 

 

 

 

 

 

 

 

169,000 

 

 

 

- 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible notes payable issued on December 30, 2009 maturing on December 31, 2011 with 6.0% interest per annum, convertible to common shares at $.20 per share

 

 

 

 

 

 

 

 

 

250,000 

 

 

 

- 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants issued, exercisable and outstanding in connection with the issuance of Convertible notes payable on December 30, 2009

 

 

 

 

 

 

 

 

 

250,000 

 

 

 

- 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants issued, exercisable and outstanding as compensation on January 1, 2010

 

 

 

 

 

 

 

 

 

125,000 

 

 

 

- 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible notes payable issued on January 12, 2010, February 18, 2010 and March 26, 2010, convertible to common shares

 

 

 

 

 

 

 

 

 

3,650,000 

 

 

 

- 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants issued, exercisable and outstanding in connection with the issuance of Convertible notes payable on January 12, 2010, February 18, 2010 and March 31, 2010

 

 

 

 

 

 

 

 

 

1,850,000 

 

 

 

- 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total potentially outstanding dilutive shares

 

 

 

 

 

 

 

 

 

11,655,800 

 

 

 

3,360,000 

 

 %

% 

 

 

 

 

 

 

- 13 -

*Cash flows reporting*

The Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments.  The Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB Accounting Standards Codification.

*Reclassifications*

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

*Recently issued accounting pronouncements*

On June 5, 2003, the United States Securities and Exchange Commission (“SEC”) adopted final rules under Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”), as amended by SEC Release No. 33-9072 on October 13, 2009.  Under the provisions of Section 404 of the Sarbanes-Oxley Act, public companies and their independent auditors are each required to report to the public on the effectiveness of a company’s internal controls.  The smallest public companies with a public float below $75 million have been given extra time to design, implement and document these internal controls before their auditors are required to attest to the effectiveness of these controls.  This extension of time will expire beginning with the annual reports of companies with fiscal years ending on or after June 15, 2010.  Commencing with its annual report for the year ending December 31, 2010, the Company will be required to include a report of management on its internal control over financial reporting.  The internal control report must include a statement.

·

of management’s responsibility for establishing and maintaining adequate internal control over its financial reporting;

·

of management’s assessment of the effectiveness of its internal control over financial reporting as of year end; and

·

of the framework used by management to evaluate the effectiveness of the Company’s internal control over financial reporting.

Furthermore, it is required to file the auditor’s attestation report separately on the Company’s internal control over financial reporting on whether it believes that the Company has maintained, in all material respects, effective internal control over financial reporting.

In August 2009, the FASB issued the FASB Accounting Standards Update No. 2009-04 *“Accounting for Redeemable Equity Instruments - Amendment to Section 480-10-S99”* which represents an update to section 480-10-S99, distinguishing liabilities from equity, per EITF Topic D-98, *Classification and Measurement of Redeemable Securities*.  The Company does not expect the adoption of this update to have a material impact on its consolidated financial position, results of operations or cash flows.

In August 2009, the FASB issued the FASB Accounting Standards Update No. 2009-05 *“Fair Value Measurement and Disclosures Topic 820 – Measuring Liabilities at Fair Value”*, which provides amendments to subtopic 820-10, Fair Value Measurements and Disclosures – Overall, for the fair value measurement of liabilities.  This update provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following techniques: 1. A valuation technique that uses: a. The quoted price of the identical liability when traded as an asset b. Quoted prices for similar liabilities or similar liabilities when traded as assets. 2. Another valuation technique that is consistent with the principles of topic 820; two examples would be an income approach, such as a present value technique, or a market approach, such as a technique that is based on the amount at the measurement date that the reporting entity would pay to transfer the identical liability or would receive to enter into the identical liability. The 

- 14 -

amendments in this update also clarify that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. The amendments in this update also clarify that both a quoted price in an active market for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements.  The Company does not expect the adoption of this update to have a material impact on its consolidated financial position, results of operations or cash flows.

In September 2009, the FASB issued the FASB Accounting Standards Update No. 2009-08 *“Earnings Per Share – Amendments to Section 260-10-S99”,*which represents technical corrections to topic 260-10-S99, Earnings per share, based on EITF Topic D-53, *Computation of Earnings Per Share for a Period that includes a Redemption or an Induced Conversion of a Portion of a Class of Preferred Stock* and EITF Topic D-42, *The Effect of the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock*. The Company does not expect the adoption of this update to have a material impact on its consolidated financial position, results of operations or cash flows.

In September 2009, the FASB issued the FASB Accounting Standards Update No. 2009-09 *“Accounting for Investments-Equity Method and Joint Ventures and Accounting for Equity-Based Payments to Non-Employees”*.  This update represents a correction to Section 323-10-S99-4, *Accounting by an Investor for Stock-Based Compensation Granted to Employees of an Equity Method Investee*. Additionally, it adds observer comment*Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other Than Employees* to the Codification. The Company does not expect the adoption to have a material impact on its consolidated financial position, results of operations or cash flows.

In September 2009, the FASB issued the FASB Accounting Standards Update No. 2009-12 *“Fair Value Measurements and Disclosures Topic 820 – Investment in Certain Entities That Calculate Net Assets Value Per Share (or Its Equivalent)”*, which provides amendments to Subtopic 820-10, Fair Value Measurements and Disclosures-Overall, for the fair value measurement of investments in certain entities that calculate net asset value per share (or its equivalent). The amendments in this update permit, as a practical expedient, a reporting entity to measure the fair value of an investment that is within the scope of the amendments in this update on the basis of the net asset value per share of the investment (or its equivalent) if the net asset value of the investment (or its equivalent) is calculated in a manner consistent with the measurement principles of Topic 946 as of the reporting entity’s measurement date, including measurement of all or substantially all of the underlying investments of the investee in accordance with Topic 820. The amendments in this update also require disclosures by major category of investment about the attributes of investments within the scope of the amendments in this update, such as the nature of any restrictions on the investor’s ability to redeem its investments a the measurement date, any unfunded commitments (for example, a contractual commitment by the investor to invest a specified amount of additional capital at a future date to fund investments that will be make by the investee), and the investment strategies of the investees. The major category of investment is required to be determined on the basis of the nature and risks of the investment in a manner consistent with the guidance for major security types in U.S. GAAP on investments in debt and equity securities in paragraph 320-10-50-1B. The disclosures are required for all investments within the scope of the amendments in this update regardless of whether the fair value of the investment is measured using the practical expedient. The Company does not expect the adoption to have a material impact on its consolidated financial position, results of operations or cash flows.

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

 

- 15 -

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

1.

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

2.

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

3.

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

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

1.

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

2.

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

If a decrease in ownership occurs in a subsidiary that is not a business or nonprofit activity, an entity first needs to consider whether the substance of the transaction causing the decrease in ownership is addressed in other U.S. GAAP, such as transfers of financial assets, revenue recognition, exchanges of nonmonetary assets, sales of in substance real estate, or conveyances of oil and gas mineral rights, and apply that guidance as applicable. If no other guidance exists, an entity should apply the guidance in Subtopic 810-10.

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

**NOTE 2 – GOING CONCERN**

As reflected in the accompanying financial statements, the Company had an accumulated deficit of $1,116,459 at March 31, 2010 and had a net loss and cash used in operations of $301,835 and $285,967 at March 31, 2010, respectively.  

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

**NOTE 3 – INVENTORY**

Inventory at March 31, 2010 and December 31, 2009 consisted of the following:

 

March 31, 2010

 

 

December 31, 2009

 

Raw materials

$

334,607 

 

 

$

321,229 

 

Finished goods

 

40,642 

 

 

 

21,024 

 

 

$

375,249 

 

 

$

342,253 

 

 

 

 

 

 

 

 

- 16 -

**NOTE 4 – PROPERTY AND EQUIPMENT**

Property and equipment, stated at cost, less accumulated depreciation at March 31, 2010 and December 31, 2009 consisted of the following:

 

Estimated Useful Life (Years)

 

March 31, 2010

 

 

December 31, 2009

 

Office equipment 

3

 

$

6,363

 

 

$

5,261

 

Production equipment

3 to 5

 

 

25,681

 

 

 

15,451

 

 

 

 

 

32,044

 

 

 

20,712

 

Less accumulated depreciation

 

 

 

(4,016

)

 

 

(2,290

)

 

 

 

$

28,028

 

 

$

18,422

 

**NOTE 5 – NOTE PAYABLE**

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

 

March 31, 2010

 

 

December 31, 2009

 

On November 12, 2009 the Company entered into a short term financing agreement of $18,750 for Director’s and Officer’s Insurance.  Repayment is to be paid over nine (9) months, at interest of 5.25% per annum.  

 

10,507 

 

 

 

16,703 

 

 

 

 

 

 

 

 

 

 

$

10,508 

 

 

$

16,703 

 

**NOTE 6 – SHORT-TERM CONVERTIBLE NOTE PAYABLE**

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

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

Expected option life (year)

5.00

 

Expected volatility

72.67%

 

Risk-free interest rate

2.49%

 

Dividend yield

0.00%

 

After allocating $49,200, a portion of the proceeds to the warrant, the effective conversion price of the short-term convertible note payable was lower than the market price at the date of issuance and per calculation the remaining balance of the net proceeds of $50,800 was allocated to a beneficial conversion feature. The company credited $50,800 to additional paid-in capital and debited the same amount to the discount to the short-term convertible note payable.

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

 

 

March 31, 2010

 

 

December 31, 2009

 

Short-term convertible note payable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Face amount of short-term convertible note payable 

 

$

100,000

 

 

$

-

 

 

 

 

 

 

 

 

 

 

Discount representing (i) the relative fair value of the warrants issued in connection with the issuance of the short-term convertible note and (ii) the beneficial conversion feature

 

 

(100,000

)

 

 

-

 

 

 

 

 

 

 

 

 

 

Accumulated amortization of discount

 

 

23,077

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

$

23,077

 

 

$

-

 

- 17 -

**NOTE 7 – CONVERTIBLE NOTES PAYABLE - RELATED PARTIES**

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

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

Expected option life (year)

 

 

 

 

 

 

5.00

 

Expected volatility

 

 

 

 

 

 

80.52%

 

Risk-free interest rate

 

 

 

 

 

 

2.69%

 

Dividend yield

 

 

 

 

 

 

0.00%

 

After allocating the $22,200, a portion of the proceeds to the warrants, the effective conversion price of the convertible notes payable was lower than the market price at the date of issuance and therefore the remaining balance of the net proceeds of $27,800 has been assigned as a beneficial conversion feature of $27,800 which was recorded by crediting $27,800 to additional paid-in capital and debiting the same amount to the discount to the convertible notes payable.

 Convertible notes payable – related parties at March 31, 2010 and December 31, 2009 consisted of the following:

 

 

March 31, 2010

 

 

December 31, 2009

 

 

 

 

 

 

 

 

 

 

Convertible note payable – related parties 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Face amount of the Convertible note payable – related parties, originated on December 30, 2009, with interest at 6.00% per annum, with principal and interest due December 31, 2011.

 

$

50,000

 

 

$

50,000

 

 

 

 

 

 

 

 

 

 

Discount representing (i) the relative fair value of the warrants issued of $22,200 and (ii) the beneficial conversion feature of $27,800

 

 

(50,000

)

 

 

(50,000)

 

 

 

 

 

 

 

 

 

 

Accumulated amortization of discount

 

 

6,250

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

$

6,250

 

 

$

-

 

**NOTE 8 – CONVERTIBLE NOTES PAYABLE**

On March 26, 2010, the Company entered into two (2) 5% convertible notes payable of $300,000 (“Convertible Note”) with Delta Group Investments Limited (the “Payee”) maturing on March 26, 2013. The Payee has the option to convert the outstanding note into Company restricted common shares at $.25 per share at any time prior to payment in full of the principal balance of the Convertible Note. The Convertible Note is callable at the option of the Company at the rate of $.25 per share, if the stock closes at $1.00 per share or higher for thirty (30) consecutive trading days. In connection with the issuance of convertible Note, the Company granted to the Payee the warrants to purchase 600,000 common shares exercisable at $0.15 per share expiring three (3) years from the date of issuance.

 

- 18 -

The relative fair value of these warrants granted, estimated on the date of grant, was $78,000, which was recorded as a discount to convertible note payable, using the Black-Scholes option-pricing model with the following weighted-average assumptions:

Expected option life (year)

 

 

 

 

 

 

3.00

 

Expected volatility

 

 

 

 

 

 

67.63%

 

Risk-free interest rate

 

 

 

 

 

 

1.64%

 

Dividend yield

 

 

 

 

 

 

0.00%

 

After allocating the $78,000 portion of the proceeds to the warrants, an additional $78,000 was allocated to a beneficial conversion feature by crediting an additional $78,000 to additional paid-in capital and debiting the same amount to the discount to the convertible note payable.

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

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

Expected option life (year)

 

 

 

 

 

 

5.00

 

Expected volatility

 

 

 

 

 

 

78.08%

 

Risk-free interest rate

 

 

 

 

 

 

2.46%

 

Dividend yield

 

 

 

 

 

 

0.00%

 

After allocating the $74,550 portion of the proceeds to the warrants, the effective conversion price of the convertible notes payable was lower than the market price at the date of issuance and per calculation the remaining balance of the net proceeds of $75,450 was allocated to a beneficial conversion feature. The company credited the $75,450 to additional paid-in capital and debited the same amount to the discount to the convertible notes payable.

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

 

 

March 31, 2010

 

 

December 31, 2009

 

 

 

 

 

 

 

 

 

 

Convertible notes payable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Face amount of convertible notes payable 

 

$

450,000

 

 

$

-

 

 

 

 

 

 

 

 

 

 

Discount representing (i) the relative fair value of the warrants issued and (ii) the beneficial conversion feature

 

 

(306,000

)

 

 

-

 

 

 

 

 

 

 

 

 

 

Accumulated amortization of discount on convertible notes payable

 

 

10,000

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

$

154,000

 

 

$

-

 

 

- 19 -

**NOTE 9 – RELATED PARTY TRANSACTIONS**

*Consulting services from Chairman and CEO*

Consulting services provided by and compensation to the Chairman and CEO were $30,000 and $0 for the three months ended March 31, 2010 and 2009, respectively.

**NOTE 10 – COMMITMENTS AND CONTINGENCIES**

*Profit sharing agreement*

On March 26, 2010 the Company entered into a Profit Sharing Agreement or Direct Marketing Affiliates Project (DMAP) with American Charter & Marketing LLC (ACM) and Delta Group Investments Limited (DGI), with the primary focus of undertaking a direct mail marketing campaign designed to sell Nutraceutical products developed and manufactured by the Company.  The parties agree that the Company will act as Managing Affiliate.  DGI will provide $300,000 in the form of a loan, as starting capital for the project (see Note 5).   The net profits of the DMAP project will be shared with 25% going to the Company, 25% to DGI, 25% to ACM and 25% as a return on the initial loan.  The DMAP project is to be in effect for three (3) years from date of execution.  The DMAP agreement contains an option to convert profits into shares of restricted common stock.  

**NOTE 11 – SUBSEQUENT EVENTS**

The Company has evaluated all events that occurred after the balance sheet date of March 31, 2010 through May 20, 2010, the date when the financial statements were issued to determine if they must be reported.  The Management of the Company determined that there were no reportable subsequent events to be disclosed.

- 20 -

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

**Forward-Looking Information**

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

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

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

**Overview of Current Operations**

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

We have developed mushroom based nutraceutical dietary supplement products that are made entirely of naturally occurring dietary substances which are manufactured under contract by a third party, Columbia Nutritional Services, Inc..  We currently market three new natural organic nutraceutical mushroom dietary supplement products, ImmuSANO and GlucoSANO for human consumption and EquiSANO for the equine market.  These naturally occurring dietary substances have not been chemically altered, and we believe these products have both health benefits and mass appeal to people wanting natural and non-toxic nutritional-based healthcare.  We market our products directly to the consumer utilizing network marketing programs, direct mail order, internet marketing, and commission sales people.  We sell directly to consumers our own proprietary formulations of over the counter mushroom based nutraceutical products produced by an outside contract manufacturer.  

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

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

- 21 -

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

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

Results of Operations for the quarter ended March 31, 2010

During the three months ended March 31, 2010, we had a net loss of $(301,831) versus a $(149,582) net loss for the same period last year,  The increase in the net loss was attributable to an increase in marketing and promotional expenses, and accounting fees offset in part by a decrease in general and administrative expenses.  Our operating expenses increased from $150,465 for the three months ended March 31, 2009 to $259,196 for the three months ended March 31, 2010.  Total liabilities increased from $138,050 in the three months ended March 31, 2009 to $398,699 for the three months ended March 31, 2010.  This increase was primarily due to the origination of notes payable during the quarter in an aggregate face amount of $550,000 without discounts.  

Revenues

We generated $24,898 in revenues for the three months ended March 31, 2010 as compared to no revenues for the same period last year.  Our cost of goods sold was $19,506 for the quarter resulting in a gross profit of $5,392.  Revenues have decreased from $27,745 for the quarter ended December 31, 2009 and $39,863 for the three months ended September 31, 2009.  

Going Concern

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

Expected purchase or sale of plant and significant equipment

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

Significant changes in the number of employees

As of March 31, 2010, we did not have any employees.  Our Chief Executive Officer, Marvin S. Hausman, M.D. provides employee like services pursuant to a consulting arrangement.  As our operations expand, we anticipate the need to hire employees however, the exact number of employees that would be hired is not quantifiable at this time.

Liquidity and Capital Resources

As of March 31, 2010 we had cash of $266,279.  However, we incurred debts in an aggregate principal amount of $550,000 at various rates of interest during the quarter ended March 31, 2010 of which $150,000 plus 6% interest matures on December 31, 2010.  The rest of the debt matures as follows:  $100,000 plus interest at 6% , matures on December 31, 2011 and the unpaid balance of $300,000 plus interest at 5%, which is subject to the Profit Sharing Agreement described above under which the loan shall be repaid on a quarterly basis from net profits generated under the agreement, matures in March 2013.    Management believes it has sufficient funds to remain operational through June 2010.

We anticipate that we will continue to generate losses during the remainder of this fiscal year and therefore, unless we are able to raise capital through equity private placements we may be unable to continue operations in the future.  Additional working capital may also be sought through additional notes payable to banks or related parties (officers, directors or stockholders), or from other available funding sources at market rates of interest, or a combination of these.  The ability to raise 

- 22 -

necessary financing will depend on many factors, including the nature and prospects of any business to be acquired and the economic and market conditions prevailing at the time financing is sought.  

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

Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

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

New Accounting Standards

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

**Item 3.  Quantitative and Qualitative Disclosures About Market Risk**

Not required

 

**Item 4.  Controls and Procedures**

**Evaluation of Disclosure Controls and Procedures**

In connection with the preparation of this Quarterly Report on Form 10-Q, an evaluation was carried out by our management, with the participation of our Chief Executive Officer who is also our principal financial and accounting officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of March 31, 2010.  Based on that evaluation, our principal executive officer and principal financial officer concluded that the material weaknesses identified in our management report on internal controls and procedures contained in our Form 10-K, Item 9A filed on April 15, 2010 still exist, and therefore our disclosure controls and procedures were not effective as of March 31, 2010.

**Changes in Internal Control Over Financial Reporting**

As of the end of the quarter ended March 31, 2010, there have been no changes in internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended March 31, 2010, that materially affected, or are reasonably likely to materially affect, our company’s internal control over financial reporting.

**Part II.** **OTHER INFORMATION**

**Item 1.  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.

- 23 -

**Item 1A.  Risk Factors**

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

**Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds 
On January 1, 2010, we entered into a consulting contract with Devin Andres.  As compensation for services under this contract we agreed to issue warrants to purchase up to 50,000 shares of common stock exercisable at $0.25 per share expiring five (5) years from the date of issuance.  Under this arrangement, a warrant to purchase up to 25,000 common shares are immediately exercisable upon execution of the contract, with the warrant to purchase an additional 12,500 shares exercisable at each December 31st for the next two (2) years.  

On January 1, 2010, we entered into a consulting and endorsement contract with Wayne Channon.  As compensation for services under this contract we agreed to issue warrants to purchase up to 50,000 shares of common stock exercisable at $0.25 per share expiring five (5) years from the date of issuance.  Under this arrangement, a warrant to purchase up to 25,000 common shares are immediately exercisable upon execution of the contract, with the warrant to purchase an additional 12,500 shares exercisable at each December 31st for the next two (2) years.  

On January 1, 2010, we entered into a consulting contract with Ryan Lentz.  As compensation for services under this contract we agreed to issue warrants to purchase up to 100,000 shares of common stock exercisable at $0.25 per share expiring five (5) years from the date of issuance.  Under this arrangement, a warrant to purchase up to 50,000 common shares are immediately exercisable upon execution of the contract, with the warrant to purchase an additional 25,000 shares exercisable at each December 31st for the next two (2) years.  

On January 1, 2010, we entered into a consulting and endorsement contract with Will and Nicole Simpson.  As compensation for services under this contract we agreed to issue warrants to purchase up to 50,000 shares of common stock exercisable at $0.25 per share expiring five (5) years from the date of issuance.  Under this arrangement, a warrant to purchase up to 25,000 common shares are immediately exercisable upon execution of the contract, with the warrant to purchase an additional 12,500 shares exercisable at each December 31st for the next two (2) years.  

On January 12, 2010, we issued a five year common stock purchase warrant to purchase 500,000 shares of common stock to Larry A. Johnson at an exercise price of $0.10 per share.  This warrant was issued in conjunction with a Promissory Note in the principal amount of $100,000 to Mr. Johnson.

On February 18, 2010, we issued a five year common stock purchase warrant to purchase 500,000 shares of common stock to Mark C. Wolf at an exercise price of $0.10 per share and another five year common stock purchase warrant to purchase 250,000 shares of common stock to Mark C. Wolf at an exercise price of $0.10 per share.  This warrant was issued in conjunction with two Promissory Notes, one in the principal amount of $100,000 and the other in the amount of $50,000 to Mr. Wolf.

In March 26, 2010 we entered into a Profit Sharing Agreement with American Charter and Marketing LLC and Delta Group Investments Limited under which we issued a three year warrant to purchase 600,000 shares of common stock at an exercise price of $0.15 per share to Delta Group Investments Limited.  The warrant was issued in conjunction with a Promissory Note in the principal amount of $300,000 to Delta Group Investments Limited.

With regard to the issuances of warrants disclosed above, we relied on the exemption from registration provided by Section 4(2) of the Securities Act of 1933.  We believed that Section 4(2) was available because the offer and sale did not involve a public offering and there was no general solicitation or general advertising involved in the offer or sale.

**Item 3.  Defaults Upon Senior Securities**

None.

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

None.

 

- 24 -

**Item 5.  Other Information**

None.

**Item 6.  Exhibits **

**Exhibit Number**

**Description of Exhibit**

**Filed Herewith**

**Form**

**Exhibit**

**Filing Date**

 

 

 

 

 

 

3.1

Articles of Incorporation of Registrant

 

SB-2

3.1

08/06/2007

 

 

 

 

 

 

3.2

Bylaws of Registrant

 

SB-2

3.2

08/06/2007

 

 

 

 

 

 

3.3

Amended Articles of Merger Incorporation as currently in effect

 

8-K

3.3

10/13/2008

 

 

 

 

 

 

10.1

Exclusive Option Agreement dated May 1, 2006, between The Penn State Research Foundation and Northwest Medical Research Inc.

 

8-K

10.1

09/04/2008

 

 

 

 

 

 

10.2

Assignment Agreement to the Option Agreement, dated July 31, 2008, among The Penn State Research Foundation, Northwest Medical Research Inc. and Generic Marketing Services, Inc.

 

8-K

10.2

09/04/2008

 

 

 

 

 

 

10.3

Assignment and Assumption Agreement, dated July 31, 2008, between Northwest Medical Research Inc. and Generic Marketing Services, Inc.

 

8-K

10.3

09/04/2008

 

 

 

 

 

 

10.4

Form of Common Stock and Warrant Purchase Agreement

 

8-K

10.1

06/12/2009

 

 

 

 

 

 

10.5

Form of Securities Purchase Agreement

 

8-K

10.1

09/21/2009

 

 

 

 

 

 

31.1

Certification of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.

X

 

 

 

 

 

 

 

 

 

31.2

Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a), promulgated under the Securities and Exchange Act of 1934, as amended.

X

 

 

 

 

 

 

 

 

 

32.1

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).

X

 

 

 

 

 

 

 

 

 

32.2

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).

X

 

 

 

 

- 25 -

**SIGNATURES**

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

 

Total Nutraceutical Solutions, Inc.

 

 

May 20, 2010

By:  

/s/ Marvin Hausman, M.D. 

 

Marvin Hausman, M.D.

Chief Executive Officer

(Principal Executive Officer and Acting Principal Financial and Accounting Officer)

 

 

- 26 -** |
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