10-Q 1 tnusmarq.txt =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ FORM 10-Q ------------------------------------ |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2009 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ ------------------ Commission file number 0-52864 TOTAL NUTRACEUTICAL SOLUTIONS ------------------------------------------------------ (Exact name of registrant as specified in its charter) ------------------ Nevada 26-0561199 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2811 Reidville Road, Suite 23, Spartanburg, SC 29301 --------------------------------------------------- (Address of principal executive offices)(Zip Code) Issuer's telephone number, including area code: (864) 316-2909 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 definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act (Check one). Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer |_| Smaller Reporting Company |X| (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 |_| As of May 20, 2009 the registrant had outstanding 50,274,470 shares of its $0.001 par value Common Stock. Table of Contents Total Nutraceutical Solutions Index to Form 10-Q For the Quarterly Period Ended March 31, 2009
Part I. Financial Information Page Item 1. Financial Statements Balance Sheets as of March 31, 2009 and December 31, 2008 3 Statements of Income for the three months ended March 31, 2009 and 2008 4 Statement of Stockholder's Equity 5 Statements of Cash Flows for the three months ended March 31, 2009 and 2008 6 Notes to Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 25 Item 3. Quantitative and Qualitative Disclosures About Market Risk 32 Item 4. Controls and Procedures 32 Part II Other Information Item 1. Legal Proceedings 35 Item 1A. Risk Factors 35 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 35 Item 3 -- Defaults Upon Senior Securities 35 Item 4 -- Submission of Matters to a Vote of Security Holders 35 Item 5 -- Other Information 35 Item 6. Exhibits 36 Signatures 37
2 Part I. Financial Information Item 1. Financial Statements Total Nutraceutical Solutions, Inc. (A Development Stage Company) Balance Sheets
March 31, 2009 December 31, (unaudited) 2008 ----------- ----------- Assets Current Assets Cash $ 104,840 $ 273,171 Inventory 200,000 200,000 Prepaids 18,567 25,529 Lease 30,321 - Notes Receivable 135,000 - Accrued Interest Receivable 675 - ----------- ----------- Total Current Assets 489,402 498,700 Fixed Assets Furniture and Equipment 2,795 - less: Accumulated Depreciation (78) - ----------- ----------- Total Fixed Assets 2,717 - Total Assets $ 492,119 $ 498,700 =========== =========== Liabilities and Stockholders Equity Current Liabilities: Accounts Payable and Accrued Expenses $ 33,031 $ 6,495 Related Party Payable 21,267 35,387 Notes Payable 10,423 16,539 ----------- ----------- Total Current Liabilities $ 64,721 $ 58,420 ----------- ----------- Stockholders Equity Preferred stock, $.001 par value, 5,000,000 shares authorized: no shares issued or outstanding $ - $ - Common stock, $.001 par value, 70,000,000 shares authorized, 50,274,470 and 49,673,750 issued and outstanding at 3/31/2009 and 12/31/2008 respectively 50,275 49,674 Additional Paid-In Capital 653,715 510,776 Deferred Compensation (6,840) Other Comprehensive Income (Loss) 1,366 1,366 Deficit Accumulated During Development Stage (271,117) (121,535) ----------- ----------- Total Stockholder's Equity 427,398 440,280 ----------- ----------- Total Liabilities and Stockholder's Equity $ 492,119 $ 498,700 =========== ===========
The accompanying condensed notes are an integral part of these interim financial statements. 3 Total Nutraceutical Solutions, Inc. (A Development Stage Company) Statements of Operations (Unaudited)
Period from July 19, Three Three 2007 (Date of Months Ending Months Ending Inception) to March 31, March 31, March 31, 2009 2008 2009 ------------- ------------- ------------- Revenue $ - $ - $ - ------------- ------------- ------------- Expenses Consulting fees 58,072 - 97,039 Advertising and Promotion 11,395 - 11,665 Depreciation 78 - 78 General and Administrative 39,197 - 46,918 Accounting 11,980 - 19,200 Legal 9,521 - 33,768 Insurance 6,962 - 9,283 Travel 12,820 - 43,694 Stock Transfer Agent 90 - 7,425 Interest 243 - 347 Miscellaneous 106 - 2,584 ------------- ------------- ------------- Total Expenses $ 150,465 $ - $ 272,000 ------------- ------------- ------------- Other Income or Expense Interest Income $ 883 $ - $ 883 Net income (loss) before income taxes $ (149,582) $ - $ (271,117) Provision for income tax - - - ------------- ------------- ------------- Net income (loss) $ (149,582) $ - $ (271,117) ============= ============= ============= Basic and fully diluted loss per share $ (0.003) $ - $ (0.010) ============= ============= ============= Basic and fully diluted weighted average shares outstanding 50,107,323 10,873,750 27,184,677 ============= ============= =============
The accompanying condensed notes are an integral part of these interim financial statements. 4 Total Nutraceutical Solutions, Inc. (A Development Stage Company) Statements of Stockholder's Equity (Unaudited)
Other Accumulated Comp- Deficit Common Additional Deferred Stock rehen- During Stock Par Paid Compen Subscriptions sive Development Shares Value In Capital -sation Receivable Income Stage Total ---------- --------- ---------- -------- ---------- ------ ---------- ---------- Balance- July 19, 2007 (Date of Inception) - $ - $ - $ - $ - $ - $ - $ - Contributed Capital 400 400 Shares issued to Basic Services stockholders October 2007 10,873,750 10,874 (10,874) - Net loss for year ending 12/31/2007 (400) (400) ---------- --------- ---------- -------- ---------- ------ ---------- ---------- Balance- December 31, 2007 10,873,750 $ 10,874 $ (10,474) $ - $ - $ - $ (400) $ - Shares issued- July 2008 40,000,000 40,000 - 40,000 Contributed capital 50 50 Shares issued- August 2008 3,000,000 3,000 297,000 300,000 Shares issued- September 2008 2,050,000 2,050 202,950 (105,000) 100,000 Subscriptions receivable payment- October 2008 105,000 105,000 Shares returned to Treasury- November 2008 (10,000,000) (10,000) (10,000) Shares issued- December 2008 250,000 250 24,750 1,366 26,366 Net loss for period (121,135) (121,135) ---------- --------- ---------- -------- ---------- ------ ---------- ---------- Balance- December 31, 2008 49,673,750 $ 49,674 $ 510,776 $ - $ - $1,366 $(121,535) $ 440,281 Shares issued- February 2009 net of offering costs of $15,000 600,000 600 102,810 103,410 Warrants issued in connection with offering 31,590 31,590 Issuance of warrants for future services 8,360 (8,360) - Shares issued for agreement- March 2009 720 1 179 180 Amortization of deferred compensation 1,520 1,520 Net loss for period (149,582) (149,582) ---------- --------- ---------- -------- ---------- ------ ---------- ---------- Balance- March 31, 2009 50,274,470 $ 50,275 $ 653,715 $(6,840) $ - $1,366 $(271,117) $ 427,398 ========== ========= ========== ======== ========== ====== ========== ==========
The accompanying condensed notes are an integral part of these interim financial statements. 5 Total Nutraceutical Solutions, Inc. (A Development Stage Company) Statements of Cash Flows (Unaudited)
Period from July 19, Three Three 2007 (Date of Months Ending Months Ending Inception) to March 31, March 31, March 31, 2009 2008 2009 ------------- ------------- ------------- OPERATING ACTIVITIES: Net Loss $ (149,582) $ - $ (271,117) Inventory - - (200,000) Prepaids 6,962 - (18,567) Lease (30,321) - (30,321) Depreciation 78 - 78 Interest Receivable (675) - (675) Notes Receivable (135,000) - (135,000) Increase (decrease) in Related Party Payable (14,120) - 21,267 Increase (decrease) in Accounts Payable/Accrued Expenses 26,536 - 33,031 ------------- ------------- ------------- Net Cash (Used) Provided by Operating Activities $ (296,122) $ - $ (601,305) ------------- ------------- ------------- INVESTING ACTIVITIES: Investment in Furniture and Equipment (2,795) - (2,795) ------------- ------------- ------------- Net Cash (Used) Provided by Investing Activities $ (2,795) $ - $ (2,795) ------------- ------------- ------------- FINANCING ACTIVITIES: Notes Payable (6,116) - 10,423 Proceeds from sale of common stock 601 - 50,275 Proceeds from additional paid in capital 142,939 - 653,715 Deferred compensation (6,840) - (6,840) Proceeds from other comprehensive income - - 1,366 ------------- ------------- ------------- Net Cash Provided by (Used in) Financing Activities $ 130,584 $ - $ 708,938 ------------- ------------- ------------- Net change in cash (168,332) - 104,839 Cash, Beginning of Period 273,171 - - ------------- ------------- ------------- Cash, End of Period $ 104,839 $ - $ 104,839 ============= ============= ============= Supplement Cash Flow Information Interest Expense Paid $ 243 $ - $ 347 ============= ============= =============
The accompanying condensed notes are an integral part of these interim financial statements. 6 Total Nutraceutical Solutions, Inc. (Formerly known as Generic Marketing Services, Inc.) (A Development Stage Company) Notes to Financial Statements March 31, 2009 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 filed a Certificate of Amendment to its Articles of Incorporation with the Nevada Secretary of State in November 2008 to change its corporate name from Generic Marketing Services to Total Nutraceutical Solutions. The Company was incorporated to conduct any legal business. The Company plans to develop a sales staff to market generic pharmaceutical products. The foregoing unaudited interim financial statements of Total Nutraceutical Solutions, Inc. (hereinafter "the Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Regulation S-K as promulgated by the Securities and Exchange Commission ("SEC"). Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles in the United States of America for complete financial statements. These unaudited interim financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's annual report on Form 10K for the year ended December 31, 2008, which was filed with the SEC on March 31, 2009. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented. The preparation of financial statements in accordance with generally accepted accounting principles in the United States of America requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Company's financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions and could have a material effect on the reported amounts of the Company's financial position and results of operations. Operating results for the three month period ended March 31, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. The Company is in the development stage. The Company's fiscal year end is December 31st. 7 Total Nutraceutical Solutions, Inc. (Formerly known as Generic Marketing Services, Inc.) (A Development Stage Company) Notes to Financial Statements March 31, 2009 NOTE 2 - Summary of Significant Accounting Practices The Company had cash assets of $104,840 and current liabilities of $64,721 as of March 31, 2009. The relevant accounting policies are listed below. Basis of Accounting ------------------- The basis is United States generally accepted accounting principles. These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. 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. At December 31, 2008 and December 31, 2007 the Company had no dilutive common stock equivalents outstanding. Dividends --------- The Company has not yet adopted any policy regarding payment of dividends. No Dividends have been paid during the periods shown. Year-end -------- The board of directors approved a change in fiscal year-end financials to December 31. Advertising ----------- Advertising is expensed when incurred. Advertising costs incurred were $11,395 and $270 at March 31, 2009 and December 31, 2008 respectively. 8 Total Nutraceutical Solutions, Inc. (Formerly known as Generic Marketing Services, Inc.) (A Development Stage Company) Notes to Financial Statements March 31, 2009 NOTE 2 - Summary of Significant Accounting Practices - Continued 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. Cash and Cash Equivalents ------------------------- Cash and cash equivalents consists of cash on deposit and term deposits with a maturity of less than three months from the date of purchase. Organizational costs -------------------- Costs of startup activities, including organizational and incorporation costs are expensed as incurred. Fair Value of Financial Instruments ----------------------------------- The carrying value of cash, and accounts payable and accrued liabilities approximate their fair value because of their short maturity of these instruments. Fair Value Measurements ----------------------- The Company has partially adopted Financial Accounting Standards Board (FASB) SFAS No. 157, Fair Value Measurements (SFAS 157), pursuant to the provisions of FSP FAS 157-2, which deferred the effective date of SFAS 157 for non- financial assets and liabilities. The provisions of SFAS 157 are applicable to all of the Company's financial assets and liabilities that are measured and recorded at fair value. SFAS 157 defines fair value, establishes a new framework for measuring fair value, and expands related disclosure. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants. SFAS 157 establishes a fair value hierarchy that gives the highest priority to observable inputs and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by SFAS 157 are described below: 9 Total Nutraceutical Solutions, Inc. (Formerly known as Generic Marketing Services, Inc.) (A Development Stage Company) Notes to Financial Statements March 31, 2009 NOTE 2 - Summary of Significant Accounting Practices - Continued Level 1 Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. The Company's Level 1 assets include cash equivalents. 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. The Company has no Level 2 assets or liabilities. Level 3 Pricing inputs that are generally observable inputs and not corroborated by market data. Quoted Prices in Active Significant Markets for other Significant identical observable unobservable assets inputs inputs Balance as of (Level 1) (Level 2) (Level 3) March 31, 2009 --------- ---------- ----------- -------------- Cash $104,840 $0 $0 $104,840 Accounts Payable and Accrued Expenses 54,298 $0 $0 $54,298 Note Payable 10,423 $0 $0 $10,423 Because of the short term nature of these assets and liabilities the carrying value approximates the fair value at March 31, 2009. Provision for Taxes ------------------- Income taxes are provided based upon the liability method of accounting pursuant to SFAS No. 109 "Accounting for Income Taxes." Under this approach, deferred income taxes are recorded to reflect the tax consequences on future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the "more likely than not" standard imposed by SFAS No. 109 to allow recognition of such an asset. 10 Total Nutraceutical Solutions, Inc. (Formerly known as Generic Marketing Services, Inc.) (A Development Stage Company) Notes to Financial Statements March 31, 2009 NOTE 2 - Summary of Significant Accounting Practices - Continued 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) collectability is reasonably assured. For the period from July 19, 2007 (inception) to March 31, 2009 the Company has not recognized any revenues. Foreign Currency Translation ---------------------------- The Company's financial statements are reported in U.S. dollars. The value of exchange transactions are translated into U.S. dollars at rates in effect at the time of the transaction execution. Translation adjustments are recorded in Other Comprehensive Income (Loss). In December 2008, the Company sold 250,000 shares of unrestricted common stock for $25,000 to a foreign investor. As a result of this transaction, there was $1,366 recorded in other comprehensive income at December 31, 2008. NOTE 3 - Going Concern These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. As of March 31, 2009, the Company has not recognized any revenues to date and has accumulated operating losses of approximately $271,117 since inception. The Company's ability to continue as a going concern is contingent upon the successful completion of additional financing arrangements and its ability to achieve and maintain profitable operations. While the Company is expending its best efforts to achieve the above plans, there is no assurance that any such activity will generate funds that will be available for operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. These financial statements do not include any adjustments that might arise from this uncertainty. 11 Total Nutraceutical Solutions, Inc. (Formerly known as Generic Marketing Services, Inc.) (A Development Stage Company) Notes to Financial Statements March 31, 2009 NOTE 4 - Preferred and Common Stock 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. At March 31, 2009 there are no shares of preferred stock issued or outstanding. In August 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. In October 2007, the shareholders of record 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. In July 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. These shares were sold to further capitalize the Company, in order to execute its business plan. In August 2008, the Company issued 3,000,000 unregistered shares of its common stock and in September 2008, the Company issued 2,050,000 unregistered shares of its common stock, in December 2008, the Company issued 250,000 unregistered shares of its common stock, par value $0.001, from its treasury to individuals in exchange for $530,000 cash. This offering also included one warrant for every two shares purchased. The warrant is exercisable at $0.25, callable at the option of the company at $0.001, if the stock traded at $0.50 per share for 2 consecutive days. 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. 12 Total Nutraceutical Solutions, Inc. (Formerly known as Generic Marketing Services, Inc.) (A Development Stage Company) Notes to Financial Statements March 31, 2009 NOTE 4 - Preferred and Common Stock - Continued In September 2008, the Company issued 3,500,000 unregistered restricted shares of its common stock, par value $0.001, from its treasury to Northwest Medical Research Partners, Inc., in exchange for an Assignment and Assumption Agreement, 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. These shares will not be registered under the Securities Act of 1933, as amended (the "Act") and were issued in the reliance upon the exemption from registration provided by section 4(2) of the Act, on the basis that the transaction does not involve a public offering. On or about November 1, 2008, Marvin Hausman, M.D., Chief Executive Officer of the Company returned to the Treasury and the Company cancelled 10,000,000 shares of its common stock, $0.001 par value per share, that had been issued and outstanding in the name of Marvin Hausman, M.D. The Company opened a private placement offering to sell to selected offerees a minimum of 1,200,000 Units and a maximum of 3,000,000 Units, at an offering price of $.50 per Unit. Each Unit is comprised of two shares of the Company's Common Stock, $0.001 par value, and two, three year callable Warrants - an "A" Warrant to purchase one share of Common Stock at an exercise price of $.75 per share and a "B" Warrant to purchase one share of Common Stock at an exercise price of $1.00 per share. The minimum offering is 1,200,000 Units. If the minimum of 1,200,000 Units is not reached in this Offering by the Offering closing date, offerees have sole discretion to release funds to the Company, in writing, pursuant to the terms of this Offering or to demand a complete refund of their monies related to this Offering. The proceeds from this offering will be utilized for operating expenses and for the purchase of certain business assets from Golden Gourmet Mushrooms, Inc. On February 5, 2009, 300,000 units, or 600,000 shares of common stock, were sold under this private placement offering to one investor for $150,000. On March 31, 2009, 720 shares of common stock were issued as a consulting fee and valued at $180 based on the terms of the consulting agreement. 13 Total Nutraceutical Solutions, Inc. (Formerly known as Generic Marketing Services, Inc.) (A Development Stage Company) Notes to Financial Statements March 31, 2009 NOTE 5 - Stock Purchase Warrants In connection with the private placement stock offering now open, the Company issued warrants for common stock to the investors as part of the investment, and as a fee to the placement consultant. At March 31, 2009, warrants for 690,000 shares were issued as part of the equity sale. The fair value of these warrants granted, estimated on the date of grant, was $31,590, which has been recorded as additional paid-in capital, using the Black- Scholes option-pricing model with the following weighted-average assumptions: Expected option life (year) 3.00 Expected volatility 83.81% Risk-free interest rate 1.42% Dividend yield 0.00% Under a consulting agreement with Mark Budzinski, the Company issued a five year warrant on February 3, 2009 as compensation. Upon execution of the contract 50,000 shares of that warrant are exercisable at $0.025 per share for a service period ending December 31, 2009. The fair value of the shares of the warrant which are exercisable, estimated on the date of grant, was $8,360. At March 31, 2009 the amortized value of these services was $1,520, which has been recorded as consulting expense. 14 Total Nutraceutical Solutions, Inc. (Formerly known as Generic Marketing Services, Inc.) (A Development Stage Company) Notes to Financial Statements March 31, 2009 NOTE 5 - Stock Purchase Warrants - Continued The table below summarizes the Company's warrants activity for the period ended March 31, 2009: Wgtd Fair Exercise Average Value at Aggregate Number of Price Exercise Date of Intrinsic Shares Per Share Price Issuance Value --------- --------- -------- -------- --------- Granted 330,000 1.00 1.00 13,174 - Canceled - - - - - Exercised - - - - - Expired - - - - - Granted 330,000 0.75 0.75 16,456 - Canceled - - - - - Exercised - - - - - Expired - - - - - Granted 30,000 0.50 0.50 1,960 - Canceled - - - - - Exercised - - - - - Expired - - - - - Granted 50,000 0.25 0.25 8,360 - Canceled - - - - - Exercised - - - - - Expired - - - - - Balance, March 31, 2009 740,000 $39,950 $ - --------- --------- -------- -------- --------- Earned and exercisable 740,000 $0.82 $39,950 $ - Unvested, March 31, 2009 150,000 $0.25 $0.25 $ - $ - The following table summarizes information concerning outstanding and exercisable warrants as of March 31, 2009: Warrants Outstanding (*) Warrants Exercisable (*) ---------------------------- ---------------------------- Average Average Remaining Weighted Remaining Weighted Number Contractual Average Number Contractual Average Range of outst- Life Exercise Exerc- Life Exercise Exercise Prices anding (in years) Price isable (in years) Price --------------- ------- ----------- -------- ------- ----------- -------- $0.50-1.00 690,000 3.00 $0.86 690,000 3.00 $0.86 $0.25 50,000 5.00 0.25 50,000 5.00 0.25 ------------------------------------------------------------------------- $0.25-1.00 740,000 4.00 $0.82 740,000 4.00 $0.82 ========================================================================= 15 Total Nutraceutical Solutions, Inc. (Formerly known as Generic Marketing Services, Inc.) (A Development Stage Company) Notes to Financial Statements March 31, 2009 NOTE 6 - 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. The Company has posted a related party payable for CEO and Board Chairman Marvin Hausman related to travel expenses of $8,267.11 and consulting of $13,000 for services performed at March 31, 2009. NOTE 7 - Provision for Income Taxes Income taxes are provided based upon the liability method of accounting pursuant to Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (hereinafter "SFAS No. 109"). Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the "more likely than not" standard imposed by SFAS No. 109 to allow recognition of such an asset. Effective December 1, 2008, the Company adopted the Financial Accounting Standards Board ("FASB") Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Additionally, FIN 48 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The adoption of FIN 48 did not have a material impact on the Company's financial position, results of operation or liquidity. The current Company policy classifies any interest recognized on an underpayment of income taxes as interest expense and classifies any statutory penalties recognized on a tax position taken as selling, general and administrative expense. 16 Total Nutraceutical Solutions, Inc. (Formerly known as Generic Marketing Services, Inc.) (A Development Stage Company) Notes to Financial Statements March 31, 2009 NOTE 7 - Provision for Income Taxes - Continued The Company has not taken a tax position that, if challenged, would have a material effect on the financial statements for the fiscal year ended December 31, 2008, or during the prior three years applicable under FIN 48. As a result of the adoption of FIN 48, we did not recognize any adjustment to the liability for uncertain tax position and therefore did not record any adjustment to the beginning balance of accumulated deficit on the balance sheet. At December 31, 2008, the Company had deferred tax assets of approximately $ 41,300 principally arising from net operating loss carry forwards for income tax purposes calculated at an expected rate of 34%. As management of the Company cannot determine that it is more likely than not that the Company will realize the benefit of the deferred tax assets, a valuation allowance equal to the deferred tax assets was present at December 31, 2008. The Company's deferred tax assets are estimated as follows: December 31, 2008 ----------------- Net operating loss carry forward (121,535) Deferred tax asset 41,300 Deferred tax asset valuation allowance (41,300) --------- Net deferred tax asset - At December 31, 2008 the Company has net operating loss carry forward of approximately $121,535 which expires in the years 2027 and 2028. NOTE 8 - Capital Leases and Other Commitments The Company entered into an agreement with Hokto Kinoko, Co. on January 26, 2009 for removal of mushroom substrate waste at their growing facility in San Marcos, California. Currently, the Company rents a portion of this facility at a cost of $944 per month. As part of this Hokto agreement, the Company agreed to install the auger and other mushroom removal equipment at a approximate cost of $32,000 and subsequently lease the equipment back to Hokto for monthly payments of $944 over a period of three years, at which point Hokto will have an option to purchase the equipment for the price of $1.00. 17 Total Nutraceutical Solutions, Inc. (Formerly known as Generic Marketing Services, Inc.) (A Development Stage Company) Notes to Financial Statements March 31, 2009 NOTE 9 - Inventory The Company states inventory at the lower of cost or market. Cost is computed on the first-in, first-out method. Inventory consisted of only one class of raw material, mushroom powder, at December 31, 2008. NOTE 10 - Exclusive Option Agreements 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. Pennsylvania State University filed PSU Invention Disclosure No. 2008-3438, which is entitled "Rapid Generation of Vitamin D2 from Mushrooms and Fungi Using Pulsed UV-light". In October 2008, the company acquired from Pennsylvania State University, in exchange for $5,000, an Exclusive Option Agreement, effective November 21, 2008, pursuant to which the Company has assumed the obligations 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. Total Nutraceutical Solutions, Inc. entered into an Option to Purchase Assets Agreement on November 21, 2008 to acquire certain business assets ("Mushroom Matrix Assets") from Golden Gourmet Mushrooms, Inc. ("GGM"), an unrelated Nevada corporation. GGM at the time of closing will receive $350,000 in cash and 2,500,000 shares of The Company's restricted Common Stock and an agreement by the Company to pay to GGM an ongoing royalty of 4% of net sales for a period of 10 years (subject to certain limitations). The acquisition of the Mushroom Matrix Assets is contingent upon closing a private placement offering currently open. In the event that the Minimum of that offering is not raised, all funds held in Escrow will be returned to the Investors in this Offering, and if, following the Closing, the acquisition of the Mushroom Matrix Assets is not consummated for any reason, the Company will return to the Investors all funds previously taken from Escrow at the Closing. 18 Total Nutraceutical Solutions, Inc. (Formerly known as Generic Marketing Services, Inc.) (A Development Stage Company) Notes to Financial Statements March 31, 2009 NOTE 11 - Note Payable On November 21, 2008 the Company entered into a short term financing agreement for $27,850 for Director's and Officer's Insurance. Repayment is to be paid over twelve months, at 6.7% interest. In addition to principle payments, the Company paid $243 of interest on this note at March 31, 2009. NOTE 12 - Property and Equipment The company records all purchases of property and equipment at cost. Assets will be depreciated using the straight-line method over the expected useful life of the asset, which as of March 31, 2009, is three years for office equipment. The following is a summary of equipment and accumulated depreciation at March 31, 2009: March 31, 2009 December 31, 2008 -------------- ----------------- Office Equipment $ 2,795 $ 0 Less: accumulated depreciation (78) 0 -------- -------- Property, Plant & Equipment, net $ 2,717 $ 0 Depreciation expense was $78 for the three months ended March 31, 2009 and $ 0 for the year ended December 31, 2008. The Company evaluates long-lived assets for impairment annually, or more frequently when events and circumstances indicate that such assets might be impaired. The Company determines impairment by comparing the undiscounted cash flows estimated to be generated by these assets as compared to the carrying amounts. Management believes that there have been no circumstances that would warrant recognition of impairment losses due to the impairment of long-lived assets as of March 31, 2009. The costs associated with maintenance will be expensed, and replacements and betterments will be capitalized. The cost and related reserves of assets sold or retired are removed from the accounts, and resulting gain or loss is reflected in results of operations. 19 Total Nutraceutical Solutions, Inc. (Formerly known as Generic Marketing Services, Inc.) (A Development Stage Company) Notes to Financial Statements March 31, 2009 NOTE 13 - Consulting Agreements On January 15, 2009, the Company entered into a consulting contract with Kinoko Company (Kinoko) whereas, the Company engaged Kinoko to identify accredited investors to purchase common stock "units" under the private placement currently open. As compensation for this service, the Company agrees to pay Kinoko a fee equal to ten percent (10%) of the gross amount of proceeds received by the Company under this private placement. The contract also entitles Kinoko to a participation fee in the form of a warrant to purchase "units" of Company common stock at an exercise price of $0.50 per "unit". (A "unit" consisting of two shares of common stock plus one "A" warrant and one "B" warrant.) Kinoko's referrals will result in their receiving one warrant to purchase one "unit" for every ten units purchased by a referred investor at $0.50. At March 31, 2009, 30,000 warrants to purchase "units" of stock were issued to Kinoko, see NOTE 5. On February 3, 2009, the Company entered into a strategic planning consulting contract with Mark Budzinski. As compensation for his services the Company agrees to issue him a five year warrant for the purchase of up to 200,000 shares of common stock at an exercise price of $0.25 per share. Under this warrant, up to 50,000 shares are immediately exercisable upon execution of the contract, with an additional 50,000 exercisable at each December 31st for the next three years. The Company valued 50,000 warrants as deferred compensation for a total value of $8,360 and amortized $1,520 at March 31, 2009, see NOTE 5. On February 15, 2009, the Company signed a two year consulting contract with Large Animal Consulting, LLC, for advice relating to animal additives and supplements. Under the contract, the consultant is to be paid $90 per hour for the first twelve hours worked in a month, and any additional hours are compensated with restricted common stock at $0.25 per share. At March 31, 2009, the Company issued 720 shares of common stock under this agreement, for a total value of $180. In addition, the consultant is entitled to receive three year stock purchase warrants at the end of any four month period in which he generates sales in excess of 25% over minimum as defined in the contract. The warrant will be equal to one warrant to purchase one share of common stock for every $2.00 of product sales. The warrants will be exercisable upon issuance at $0.25 a share during the first year, and increases to $0.35 during the second year. At March 31, 2009, no warrants were issued under this contract. On February 11, 2009, the Company entered into a marketing agreement with RAM Marketing, LLC (RAM). Under this agreement, the Company will pay RAM a percentage of sales revenue as compensation. In addition, RAM is entitled to receive three year stock purchase warrants as a bonus at the end of any year in which it generates sales in excess of 25% of minimum as defined in the contract. The warrants are exercisable at $0.25 each and equal to one warrant for one share of common stock for every $2.00 in sales. The exercise price will increase in year two to $0.35, in year three to $0.45, in year four to $0.55, and in years five through ten to $1.00. At March 31, 2009 no warrants were issued under this contract. 20 Total Nutraceutical Solutions, Inc. (Formerly known as Generic Marketing Services, Inc.) (A Development Stage Company) Notes to Financial Statements March 31, 2009 NOTE 14 - 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) 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. 21 Total Nutraceutical Solutions, Inc. (Formerly known as Generic Marketing Services, Inc.) (A Development Stage Company) Notes to Financial Statements March 31, 2009 NOTE 14 - Recent Accounting Pronouncements - Continued 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 or December 31, 2008. Accordingly, the staff will continue to accept, under certain circumstances, the use of the simplified method beyond December 31, 2007 and December 31, 2008. 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. 22 Total Nutraceutical Solutions, Inc. (Formerly known as Generic Marketing Services, Inc.) (A Development Stage Company) Notes to Financial Statements March 31, 2009 NOTE 14 - Recent Accounting Pronouncements - Continued 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 adopted SFAS No. 159 beginning March 1, 2008. It has no effect on the Company's financial position, statements of operations, or cash flows at this time. 23 Total Nutraceutical Solutions, Inc. (Formerly known as Generic Marketing Services, Inc.) (A Development Stage Company) Notes to Financial Statements March 31, 2009 NOTE 14 - 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 adopted this statement March 1, 2008. It has no effect on the Company's financial position, statements of operations, or cash flows at this time. NOTE 15 - Subsequent Events On April 2, 2009 the Company entered into a consulting agreement with Mike Erickson. As compensation for his services TNS agrees to issue a three year warrant for the purchase of up to 200,000 shares of common stock at an exercise price of $0.25 per share. Under this warrant, up to 50,000 shares are immediately exercisable upon execution of the contract, with an additional 50,000 exercisable on April 1st of the next three years. Total Nutraceutical Solutions, Inc. entered into a definitive 90 day option agreement dated November 22, 2008 with Golden Gourmet Mushroom, Inc. to acquire all right, title and interest in the Mushroom Matrix Assets in exchange for Three Hundred Fifty Thousand ($350,000) and Two Million Five Hundred Thousand (2,500,000) shares of restricted Common Stock of the Company and a certain royalty interest in future net sales generated by the Company. At the end of the 90 day option, Golden Gourmet Mushrooms, Inc. granted an extension to the option to April 30, 2009. The Company requested a second extension to May 18, 2009 for the express purpose of reaching the minimum on a 506 private offering. Golden Gourmet Mushrooms declined the request to extend the option period, except under certain conditions which the management of the Company believed were not in the best interest of the Company or its shareholders. The Company currently has investment funds residing in an escrow account. As a consequence of not having a legal option in place, the Company will be making a formal rescission offer to certain investors who have participated in the private offering and have funds deposited in the escrow. 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Information The Company may from time to time make written or oral "forward-looking statements" including statements contained in this report and in other communications by the Company, which are made in good faith by the Company pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements of the Company's 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 the Company's 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 the Company's suppliers and customers, changes in client needs and consumer spending habits, the impact of competition and technological change on the Company, the Company's 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 the Company on the date of this report. The Company undertakes 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. Critical Accounting Policies ---------------------------- 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, 2008. 25 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 March 31, 2009. Emphasis has been placed on raising sufficient capital to develop these products. Business Strategy ----------------- Total Nutraceutical Solutions "(the Company") 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. The Company develops production and analytic technologies for food and nutritional supplements composed primarily of mushrooms and their mycelial biomasses. Novel clinical models and biomarkers will be used to show nutritional and clinical efficacy of our products. In addition to preventative healthcare formulations and nutritional approaches to a wide variety of human conditions and illnesses, the Company also develops and acquires breakthrough nutritional tools and products in the fields of animal husbandry and livestock feeds. 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. 26 We anticipate that the company will sell directly to consumers products that have been designed by the company and produced by outside contract manufacturers. 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 $530,000 in exchange for 5,30,000 unregistered shares of its common stock. These funds will be used to develop and market nutraceutical products. 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 and health care professionals, 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 --------------- 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, 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. 27 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. 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 will 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. Mushroom Substrate ------------------ The Company announced on February 17, 2009 that it signed an agreement with Hokto Kinoko Co. to acquire mushroom spent substrate from the Hokto facility in San Marcos, CA. The 250,000 square foot growing facility for fresh specialty mushrooms has the potential at full capacity to produce 20-25 tons of spent substrate per day. The Company plans to develop and market this material as an animal feed additive with nutritional value via collaborative research with the Department of Food Science at Pennsylvania State University. Mushroom substrate waste is defined as the spent substrate (growing media) and all mushroom residuals resulting from cleaning the growing bottles after the harvest of mushroom fruit bodies at the growing facility. The Hokto state-of- the-art facility, the largest of its kind in the United States, will produce the following mushrooms: Brown Beech (Buna Shimeji), White Beech (Bunapi)(tm), King Trumpet (Pleurotus eryngii), and Maitake. Recent Event ------------ Total Nutraceutical Solutions, Inc. entered into a definitive 90 day option agreement dated November 22, 2008 with Golden Gourmet Mushroom, Inc. to acquire all right, title and interest in the Mushroom Matrix Assets in exchange for Three Hundred Fifty Thousand ($350,000) and Two Million Five Hundred Thousand (2,500,000) shares of restricted Common Stock of the Company and a certain royalty interest in future net sales generated by the Company. At the end of the 90 day option, Golden Gourmet Mushrooms, Inc. granted an extension to the option to April 30, 2009. The Company requested a second 28 extension to May 18, 2009 for the express purpose of reaching the minimum on a 506 private offering. Golden Gourmet Mushrooms declined the request to extend the option period, except under certain conditions which the management of the Company believed were not in the best interest of the Company or its shareholders. The Company currently has investment funds residing in an escrow account. As a consequence of not having a legal option in place, the Company will be making a formal rescission offer to certain investors who have participated in the private offering and have funds deposited in the escrow which were specifically earmarked to purchase Golden Gourmet Mushrooms. Results of Operations for the quarter ended March 31, 2009 ---------------------------------------------------------- During the three months ended March 31, 2009, the Company had a net loss of $(149,582) versus a no net loss for the same period last year, when the Company was somewhat inactive. Total Nutraceutical Solutions earned no revenues since its inception on July 19, 2007 through March 31, 2009. Management does not anticipate earning any significant revenues until such time as it can bring to the market a nutraceutical product(s). The Company is presently in the development stage of its business and there are no assurances that it will be successful in developing any nutraceutical product(s). For the period since inception through March 31, 2009, the Company generated no income. Since inception on July 19, 2007, the Company experienced a net loss of $(271,117). The loss was attributed to organizational expenses, accounting and legal fees and building infrastructure. Management anticipates its operating expenses will increase as the Company starts to develop and market nutraceutical product(s). Management also anticipates the Company's ongoing operating expenses will also increase since Total Nutraceutical Solutions is a reporting company under the Securities Exchange Act of 1934. Revenues -------- We generated no revenues for the period from August 14, 2006 (inception) through March 31, 2009. 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. 29 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. 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, 2009, 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 March 31, 2009 reflects cash of $104,840, current assets of $489,402 and current Liabilities of $64,721. Cash and cash equivalents from inception to date have been sufficient to provide the operating capital necessary to operate to date. Management believes it has sufficient funds to remain operational for the next twelve months. Notwithstanding, we anticipate generating losses and therefore we may be unable to continue operations in the future. We anticipate we will require additional capital and we intend to raise the monies by selling equity in our Company. Without realization of additional capital, it would be unlikely for the Company to continue as a going concern. In order for the Company to remain a Going Concern it will need to find additional capital. Additional working capital may be sought through additional debt or equity private placements, 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 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. 30 There can be no assurance that additional 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 ------------------------------------------ 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. New Accounting Standards ------------------------ In December 2007, the FASB issued SFAS No. 160, "Non-controlling Interests in Consolidated Financial Statements". This statement amends ARB 51 to establish accounting and reporting standards for the non-controlling (minority) interest in a subsidiary and for the de-consolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is equity in the consolidated financial statements. SFAS No. 160 is effective for fiscal years and interim periods beginning after December 15, 2008. The adoption of SFAS 160 is not expected to have a material impact on the Company's financial position, results of operation or cash flows. As of January 1, 2008 we adopted SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS No. 159"). SFAS No. 159 allows the company to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. The adoption of SFAS 159 has not had a material impact on our financial position, results of operation or cash flows. As of January 1, 2008 we adopted SFAS No. 157, "Fair Value Measurements" ("SFAS No. 157"). SFAS No. 157 defines fair value and provides guidance for measuring and disclosing fair value. The adoption of SFAS 157 has not had a material impact on our financial position, results of operation or cash flows. 31 Item 3. Quantitative and Qualitative Disclosures about Market Risk. Not applicable. Item 4T. 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; 32 - 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 December 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 December 31, 2008. 33 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 quarterly 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 quarterly 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 December 31, 2009. Additionally, we plan to test our updated controls and remediate our deficiencies by December 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. 34 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. 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, 2008 and the discussion in Item 1, above, under " Liquidity and Capital Resources." Item 2 -- Unregistered Sales of Equity Securities and Use of Proceeds On February 5, 2009, 300,000 units, or 600,000 shares of common stock, were sold under this private placement offering to one investor for $150,000. On March 31, 2009, 720 shares of common stock were issued as a consulting fee and valued at $180 based on the terms of the consulting agreement. On April 2, 2009 the Company entered into a consulting. As compensation for services the Company agrees to issue the consultant a three year warrant for the purchase of up to 200,000 shares of common stock at an exercise price of $0.25 per share. Under this warrant, up to 50,000 shares are immediately exercisable upon execution of the contract, with an additional 50,000 exercisable on April 1st of the next three years. Item 3 -- Defaults Upon Senior Securities None. Item 4 -- Submission of Matters to a Vote of Security Holders None. Item 5 -- Other Information None. 35 Item 6 -- Exhibits 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. ------------------------------------------------------------------------------- 31.1 Certification of Chief X Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act ------------------------------------------------------------------------------- 31.2 Certification of Chief X Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act ------------------------------------------------------------------------------- 32.1 Certification of Chief X Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act ------------------------------------------------------------------------------- 32.2 Certification of Chief X Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act ------------------------------------------------------------------------------- 36 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Total Nutraceutical Solutions ----------------------------- Registrant Date: May 20, 2009 By: /s/ Frank Arnone ------------ -------------------- Frank Arnone President 37