Notes
To Financial Statements
For
the Year Ended December 31, 2011
NOTE 1
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Business
Activity
Exercise
For Life Systems, Inc., (the “Company”) offers personal fitness training services and products and is located in the
Charlotte, North Carolina area. The Company was incorporated in New Jersey in 1996 as A.J. Glaser, Inc. and later incorporated
in North Carolina in 2006 also as A.J. Glaser, Inc. (“A. J. Glaser”) On June 9, 2008, the Company filed
an amendment to the Articles of Incorporation with the Secretary of State of North Carolina to change its corporate name to Exercise
For Life Systems, Inc. (FKA A.J. Glaser, Inc.). This amendment also changed the par value of the common stock from $1 per share
to $.0001 per share and increased the authorized common shares from 100 shares to 100,000,000 shares.
In
September 2008, the Company (legal acquirer) executed a Plan of Exchange with A.J. Glaser (accounting acquirer), whereby we exchanged
100 shares of our common stock for all of the issued and outstanding shares of A.J.Glaser, Inc. As a result, A.J.Glaser became
the wholly-owned subsidiary of the Company.
The
above mentioned stock exchange transaction has been accounted for as a reverse acquisition and recapitalization of the Company
whereby the New Jersey corporation is deemed to be the accounting acquirer (legal acquiree) and the North Carolina corporation
to be the accounting acquiree (legal acquirer). The accompanying consolidated financial statements are in substance those of the
New Jersey corporation, with the assets and liabilities, and revenues and expenses, of the North Carolina corporation being included
effective from the date of stock exchange transaction. The North Carolina corporation is deemed to be a continuation of the business
of the New Jersey corporation. Accordingly, the accompanying consolidated financial statements include the following:
(1)
The balance sheet consists of the net assets of the accounting acquirer at historical cost and the net assets of the accounting
acquiree at historical cost
(2)
the financial position, results of operations, and cash flows of the acquirer for all periods presented as if the recapitalization
had occurred at the beginning of the earliest period presented and the operations of the accounting acquiree from the date of
stock exchange transaction.
Basis
of Presentation
The
financial statements include the accounts of Exercise For Life Systems, Inc. under the accrual basis of accounting.
Management’s
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 at the date of
the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could
differ from those estimates. The financial statements above reflect all of the costs of doing business.
Income
Taxes
The
Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax
assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be in effect when 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 statements of operations in the
period that includes the enactment date.
Fair
Value of Financial Instruments
The
Company’s financial instruments are cash, accrued interest payable, promissory note payable, and accounts payable. The recorded
values of cash and payables approximate their fair values based on their short-term nature.
Comprehensive
Income (Loss)
The Company reports comprehensive income and its components following guidance set forth by section 220-10
of the FASB Accounting Standards Codification which establishes standards for the reporting and display of comprehensive income
and its components in the consolidated financial statements. There were no items of comprehensive income (loss) applicable to
the Company during the period covered in the financial statements.
Loss
Per Share
Net loss per common share is computed pursuant to section 260-10-45 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. There were no potentially dilutive shares outstanding
as of December 31, 2010 and 2009.
Long-Lived
Assets
The Company evaluates the recoverability of its fixed assets and other assets in accordance with section 360-10-15
of the FASB Accounting Standards Codification for disclosures about Impairment or Disposal of Long-Lived Assets. Disclosure requires
recognition of impairment of long-lived assets in the event the net book value of such assets exceeds its expected cash flows.
If so, it is considered to be impaired and is written down to fair value, which is determined based on either discounted future
cash flows or appraised values. The Company adopted the statement on inception. No impairments of these types of assets were recognized
during the years ended December 31, 2010 and 2009.
Property
and Equipment
Property and equipment is stated at cost. Depreciation is provided by the straight-line method over the
estimated economic life of the property and equipment remaining from five to seven years.
When
assets are sold or retired, their costs and accumulated deprecation are eliminated from the accounts and any gain or loss resulting
from their disposal is included in the statement of operations.
The
Company recognizes an impairment loss on property and equipment when evidence, such as the sum of expected future cash flows (undiscounted
and without interest charges), indicates that future operations will not produce sufficient revenue to cover the related future
costs, including depreciation, and when the carrying amount of the asset cannot be realized through sale. Measurement of the impairment
loss is based on the fair value of the assets.
Revenue
Recognition
Revenue is recognized when fitness training services are completed provided collection from the client
of the resulting receivable is probable. Revenue from product sales is recognized when the products are shipped.
Risk
and Uncertainties
The Company is subject to risks common to companies in the service industry, including, but not limited
to, litigation, development of new technological innovations and dependence on key personnel.
Cash
and Cash Equivalents
For purposes of the Statements of Cash Flows, the Company considers highly liquid investments with
an original maturity of three months or less to be cash equivalents.
Share-Based
Payments
The Company accounts for stock-based compensation using the fair value method following the guidance set forth in
section 718-10 of the FASB Accounting Standards Codification for disclosure about Stock-Based Compensation. This section requires
a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the
grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee
is required to provide service in exchange for the award- the requisite service period (usually the vesting period). No compensation
cost is recognized for equity instruments for which employees do not render the requisite service.
Advertising
Costs
Advertising costs are expensed as incurred. The Company does not incur any direct-response advertising costs.
Recent
Accounting Pronouncements
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements
and do not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial
condition or the results of its operations.
FASB
Accounting Standards Codification
(Accounting
Standards Update (“ASU”) 2009-01)
In
June 2009, FASB approved the FASB Accounting Standards Codification (“the Codification”) as the single source
of authoritative nongovernmental GAAP. All existing accounting standard documents, such as FASB, American Institute of Certified
Public Accountants, Emerging Issues Task Force and other related literature, excluding guidance from the Securities and Exchange
Commission (“SEC”), have been superseded by the Codification. All other non-grandfathered, non-SEC accounting literature
not included in the Codification has become nonauthoritative. The Codification did not change GAAP, but instead introduced a new
structure that combines all authoritative standards into a comprehensive, topically organized online database. The Codification
is effective for interim or annual periods ending after September 15, 2009, and impacts the Company’s
consolidated
financial statements as all future references to authoritative accounting literature will be referenced in accordance with
the Codification. There have been no changes to the content of the Company’s financial statements or disclosures as a result
of implementing the Codification during the fiscal year ended December 31, 2009.
As
a result of the Company’s implementation of the Codification during the fiscal year ended December 31, 2009, previous references
to new accounting standards and literature are no longer applicable. In the current annual
consolidated
financial statements, the Company will provide reference to both new and old guidance to assist in understanding the impacts
of recently adopted accounting literature, particularly for guidance adopted since the beginning of the current fiscal year but
prior to the Codification.
S
ubsequent
Events
(Included
in Accounting Standards Codification (“ASC”) 855 “Subsequent Events”, previously SFAS No. 165 “Subsequent
Events”)
SFAS
No. 165 established general standards of accounting for and disclosure of events that occur after the balance sheet
date, but before the
consolidated
financial statements are issued or available to be issued
(“subsequent events”). An entity is required to disclose the date through which subsequent events have been
evaluated and the basis for that date. For public entities, this is the date the
consolidated
financial statements are issued. SFAS No. 165 does not apply to subsequent events or transactions that are within the
scope of other GAAP and did not result in significant changes in the subsequent events reported by the Company. SFAS
No. 165 became effective for interim or annual periods ending after June 15, 2009 and did not impact the
Company’s
consolidated
financial statements.
Determination
of the Useful Life of Intangible Assets
(Included
in ASC 350 “Intangibles — Goodwill and Other”, previously FSP SFAS No. 142-3 “Determination of the
Useful Lives of Intangible Assets”)
FSP
SFAS No. 142-3 amended the factors that should be considered in developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under previously issued goodwill and intangible assets topics. This change was
intended to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows
used to measure the fair value of the asset under topics related to business combinations and other GAAP. The requirement for
determining useful lives must be applied prospectively to intangible assets acquired after the effective date and the disclosure
requirements must be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. FSP
SFAS No. 142-3 became effective for
consolidated
financial statements issued for fiscal
years beginning after December 15, 2008, and interim periods within those fiscal years. The adoption of FSP SFAS No. 142-3
did not impact the Company’s
consolidated
financial statements.
Noncontrolling
Interests
(Included
in ASC 810 “Consolidation”, previously SFAS No. 160 “Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51”)
SFAS
No. 160 changed the accounting and reporting for minority interests such that they will be recharacterized as noncontrolling
interests and classified as a component of equity. SFAS No. 160 became effective for fiscal years beginning after December 15,
2008 with early application prohibited. The Company implemented SFAS No. 160 at the start of fiscal 2009.
Consolidation
of Variable Interest Entities — Amended
(To
be included in ASC 810 “Consolidation”, SFAS No. 167 “Amendments to FASB Interpretation No. 46(R)”)
SFAS
No. 167 amends FASB Interpretation No. 46(R) “Consolidation of Variable Interest Entities regarding certain guidance
for determining whether an entity is a variable interest entity and modifies the methods allowed for determining the primary beneficiary
of a variable interest entity. The amendments include: (1) the elimination of the exemption for qualifying special purpose
entities, (2) a new approach for determining who should consolidate a variable-interest entity, and (3) changes to when
it is necessary to reassess who should consolidate a variable-interest entity. SFAS No. 167 is effective for the first annual
reporting period beginning after November 15, 2009, with earlier adoption prohibited. The Company adopted SFAS No. 167
in fiscal 2010 and does not anticipate any material impact on the Company’s financial statements.
NOTE
2
INCOME TAXES
At
December 31, 2011 the Company had federal and state net operating loss carry forwards of approximately $246,500 that expire in
various years through the year 2024.
Due
to operating losses, there is no provision for current federal or state income taxes for the years ended December 31, 2011 and
2010.
Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amount used for federal and state income tax purposes.
The
Company’s deferred tax asset at December 31, 2011 consists of net operating loss carry forwards calculated using
federal and state effective tax rates equating to approximately $98,000 less a valuation allowance in the amount of
approximately $98,000. Because of the Company’s lack of earnings history, the deferred tax asset has been fully offset
by a valuation allowance. The valuation allowance increased by approximately $0 and $15,000 for the years ended December 31,
2011 and 2010, respectively.
The
Company’s total deferred tax asset as of December 31, 2011 is as follows:
Net operating loss carry forwards
|
|
$
|
98,000
|
|
Valuation allowance
|
|
|
(98,000
|
)
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
-0-
|
|
The
reconciliation of income taxes computed at the federal and state statutory income tax rate to total income taxes for the years
ended December 31, 2010 and 2009 is as follows:
Income tax computed at the federal statutory rate
|
|
|
34
|
%
|
Income tax computed at the state statutory rate
|
|
|
6
|
%
|
Valuation allowance
|
|
|
(40
|
)%
|
|
|
|
|
|
Total deferred tax asset
|
|
|
0
|
%
|
NOTE
3
CAPITAL STOCK
The
Company is authorized to issue 100,000,000 common shares at $.0001 par value per share.
During
the year ended December 31, 2010, the Company issued 25,000 restricted common shares to an unrelated service provider in exchange
for web design, hosting services, annual web site content updates, annual domain name registration and an online marketing program
rendered during such year pursuant to a private placement made under Regulation 504. These shares were priced at the private placement
price of $1 per share which approximated the fair value of the services rendered. The Company recorded $25,000 in non-cash consulting
expense in the accompanying statements of operations during the year ended December 31, 2010 for these shares.
In
2011 Overall the Company 28,447,950 shares .
Common
stock issued to settle convertible loan
On
February 10, 2011, the Company issued 2,100,000 shares of its common stock to settle the loan of $21,000 from a third party, which
were accrued expenses due to the services rendered in connection with a reverse merger transaction and SEC compliance 10-K, 10-Q
and Edgarization.
The
loan holder had the option to convert the loan into common stock of the Company at the price of $.01 per share by August 2, 2011.
The
fair value of this stock issuance was $42,000 determined using the fair value of the Company’s common stock on the grant
date, at a market quoted price of $.02. The difference between the fair market value and the conversion price of $.01 per share
was recognized as loss on extinguishment of convertible debt.
In
February the Company issued 18,115,270 shares @.02 the market price for a failed merger resulting in an expense of $362,305.
The shares issued were later transferred to the new president and the Company has expensed these as stock for services.
In
February the Company issued 3,375,734 shares to pay off accrued liabilities of $45,079 and pay $22,436 in consulting fees.
Finally,
the Company issued 4,856,946 for services valued at market @..02 cents per share resulting in an expense of $97,139.
NOTE 4
INCOME
(LOSS) PER SHARE
Income
(loss) per share is computed by dividing the net income (loss) by the weighted average number of common shares outstanding during
the period. Basic and diluted loss per share was the same for the years ended December 31, 2011 and 2010.
NOTE
5
LEASE COMMITMENTS AND RELATED PARTY TRANSACTIONS
The
Company has an oral, month-to-month lease with its President. The lease is gratuitous and consists of approximately 100 square
feet of office space. The effects of the fair value of rent of its headquarters that is provided by a related party are immaterial
to the financial statements taken as a whole.
NOTE
6
GOING CONCERN AND UNCERTAINTY
The
Company has suffered a loss from operations in 2011 and in 2010. In addition, the Company has generated a negative internal cash
flow from its business operations in 2010 and has negative working capital at December 31, 2011. These factors raise substantial
doubt as to the ability of the Company to continue as a going concern.
Management’s
plans with regard to these matters encompass the following actions: 1) obtain funding from new investors to alleviate the Company’s
working deficiency, and 2) implement a plan to increase sales. The Company’s continued existence is dependent upon its ability
to resolve its liquidity problems and increase profitability in its current business operations. However, the outcome of management’s
plans cannot be ascertained with any degree of certainty. The accompanying financial statements do not include any adjustments
that might result from the outcome of these risks and uncertainties.
Due
to business worsening, a poor economic climate and cash at low levels, management has elected to search for acquisition
candidates to enhance value to its shareholders.