Notes
To Financial Statements
March
31, 2012
(Unaudited)
1. BASIS
OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance with both generally accepted accounting principles for interim
financial information, and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying
unaudited financial statements reflect all adjustments (consisting of normal recurring accruals) that are,
in the opinion of management, considered necessary for a fair presentation of the results for the interim periods presented. Interim
results are not necessarily indicative of results for a full year.
2. ORGANIZATION
AND BUSINESS BACKGROUND
Exercise For Life Systems
Inc. (the “Company”) was originally incorporated in the State of North Carolina on October 2, 2006 as A.J. Glaser,
Inc. On June 12, 2008, the Company filed Articles of Amendment to change the name of the Company to Exercise For Life Systems Inc.
On
February 10, 2011, the Company entered into a Plan of Exchange agreement with MediaMatic Ventures Inc., a privately-held company
incorporated under the laws of the Province of Alberta, Canada (“MMV”), and the shareholders of MMV (“MMV Shareholders”).
Pursuant to the agreement, the Company purchased all 15,685,692 of the issued and outstanding common shares of MMV from the MMV
shareholders in exchange for issuing 28,000,000 shares of the Company’s common stock to MMV shareholders,
which
gave MMV shareholders
an interest in the Company representing approximately 70% of the then issued and outstanding shares
of the Company. However the deal was recinded and cancelled and hence the merger was never consummated and the financials have
been restated not to include the merger.
3. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial
statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of
America (“GAAP”) under the accrual basis of accounting.
Use of Estimates
Financial statements prepared
in accordance with GAAP require management to make estimates and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash equivalents are comprised
of certain highly liquid investments with maturities of three months or less when purchased. The Company maintains its cash in
bank deposit accounts, which at times, may exceed federally insured limits.
Equipment, net
Equipment is stated at
cost. Capital expenditures for improvements and upgrades to existing equipment are also capitalized. Maintenance and repairs are
expensed as incurred. Equipment is depreciated over the estimated useful life of five years on straight-line basis.
Long-Lived Assets
In accordance with ASC
350-30 (formerly SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets
), the Company evaluates long-lived
assets for impairment whenever events or changes in circumstances indicate that their then carrying values may not be recoverable.
When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the
related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any,
is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected
cash flows, of those assets and is recorded in the period in which the determination is made. The Company’s management currently
believes there is no impairment of its long-lived assets. There can be no assurance however, that market conditions will not change
or demand for the Company’s products under development will continue. Either of these could result in future impairment of
long-lived assets.
Fair Value of Financial Instruments
ASC 820-10 (formerly SFAS
No. 157,
Fair Value Measurements
) requires entities to disclose the fair value of financial instruments, both assets and
liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value. ASC 820-10
defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction
between willing parties. As of March 31, 2012 and December 31, 2011, the carrying value of certain financial instruments such as
accounts receivable, accounts payable, accrued expenses, and amounts due to/from related party approximates fair value due to the
short-term nature of such instruments.
Revenue Recognition
The Company recognizes
net revenue from DVD movie rentals on a ratable basis during the term of a consumer’s rental transaction. Revenue from a
direct sale out of the kiosk of previously rented movies is recognized at the time of sale. On rental transactions for which the
related DVDs have not yet been returned to the kiosk at month-end, revenue is recognized with a corresponding receivable recorded
in the balance sheet, net of a reserve for potentially uncollectible amounts. We record revenue net of refunds and applicable sales
taxes collected from consumers.
Income taxes
As a result of the implementation
of certain provisions of ASC 740,
Income
Taxes, (formerly FIN 48,
Accounting for Uncertainty in Income Taxes –
An Interpretation of FASB Statement No. 109) ,
(“ASC 740”), which clarifies the accounting and disclosure for uncertainty
in tax positions, as defined. ASC 740 seeks to reduce the diversity in practice associated with certain aspects of the
recognition and measurement related to accounting for income taxes. We adopted the provisions of ASC 740 as of January
1, 2007, and have analyzed filing positions in the Canadian jurisdiction where the Company is required to file income tax returns,
as well as all open tax years in these jurisdictions. We have identified Alberta, Canada as our "major" tax
jurisdictions. Generally, we remain subject to Canadian examination of our income tax returns.
We believe that our income
tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material
change to our financial position. Therefore, no reserves for uncertain income tax positions have been recorded pursuant
to ASC 740. In addition, we did not record a cumulative effect adjustment related to the adoption of ASC 740. Our
policy for recording interest and penalties associated with income-based tax audits is to record such items as a component of income
taxes.
Our tax provision for interim
periods is determined using an estimate of our annual effective tax rate based on rates established within Canada and, adjusted
for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate
of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment. The 2011 annual
effective tax rate is estimated to be 28% Canadian.
Net (Loss) Income per Common Share –
Basic and Diluted
Net (loss) income per common
share is computed based on the weighted average number of shares outstanding for the period. As of March 31, 2012 and December
31, 2011, the Company had 40,000,000 shares outstanding. Additionally, there were no adjustments to net income to determine net
income available to common stockholders. As such, basic net income per common share equals net income, as reported,
divided by the weighted average common shares outstanding for the respective periods. There were no dilutive common
stock equivalents as of March 31, 2012 and December 31, 2011.
Parties, which can be a
corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the
other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also
considered to be related if they are subject to common control or common significant influence. A material related party transaction
has been identified in Note 8 in the financial statements.
Recent Accounting Pronouncements
The Company has reviewed
all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements
may be expected to cause a material impact on its consolidated financial condition or the consolidated results of its operations.
Credit Quality of
Financing Receivables and the Allowance for Credit Losses
In July 2010, the Financial
Accounting Standards Board (“FASB”) amended the requirements for
Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses
. As a result of these amendments, an entity is required to disaggregate by
portfolio segment or class certain existing disclosures and provide certain new disclosures about its financing receivables and
related allowance for credit losses. The new disclosures as of the end of the reporting period are effective for the fiscal year
ending December 31, 2010, while the disclosures about activity that occurs during a reporting period are effective for the first
fiscal quarter of 2011. The adoption of this guidance did not impact the Company’s consolidated results of operations or
financial position.
Fair Value Measurements
and Disclosures
In January 2010, the FASB issued
authoritative guidance regarding fair value measures and disclosures. The guidance requires disclosure of significant transfers
between level 1 and level 2 fair value measurements along with the reason for the transfer. An entity must also separately
report purchases, sales, issuances and settlements within the level 3 fair value roll forward. The guidance further provides
clarification of the level of disaggregation to be used within the fair value measurement disclosures for each class of assets
and liabilities and clarified the disclosures required for the valuation techniques and inputs used to measure level 2 or
level 3 fair value measurements. This new authoritative guidance is effective for the Company in fiscal years beginning after
December 15, 2010, and for interim periods within those fiscal years. The adoption of this guidance did not impact the Company’s
consolidated results of operations or financial position.
4. COMMON STOCK
Overall the Company
issued in 2011 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.
5. GOING CONCERN UNCERTAINTIES
These financial statements
have been prepared assuming that Company will continue as a going concern, which contemplates the realization of assets and the
discharge of liabilities in the normal course of business for the foreseeable future.
As of March 31, 2012, the
Company had an accumulated deficit of $847,665. Management has taken certain action and continues to implement changes designed
to improve the Company’s financial results and operating cash flows. The actions involve certain cost-saving initiatives
and growing strategies, including (a) reductions in headcount and corporate overhead expenses; and (b) expansion into new market. Management
believes that these actions will enable the Company to improve future profitability and cash flow in its continuing operations
through December 31, 2012. As a result, the financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result
from the outcome of the Company’s ability to continue as a going concern.
6: CORRECTION OF ERRORS AND RESTATEMENT
Due to a recission, by The Company, of the Plan of Exchange agreement
with MediaMatic Ventures Inc., a privately-held company incorporated under the laws of the Province of Alberta, Canada (“MMV”),
the agreement both consummated and rescinded in the 1
st
Qtr of 2011, the March 31, 2011 balance sheet, income statement
and statement of cash flows have been restated to reflect The Company’s financials absent any impact of the Plan of Exchange
Agreement.
EXERCISE FOR LIFE SYSTEMS, INC.
BALANCE SHEET
|
|
As of March 31, 2011
|
|
|
Restated
|
|
Adjustments
|
|
As Filed
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalent
|
|
|
—
|
|
|
|
(23,410
|
)
|
|
|
23,410
|
|
Accounts Receivable
|
|
|
—
|
|
|
|
(54,154
|
)
|
|
|
54,154
|
|
Inventories
|
|
|
—
|
|
|
|
(1,261,100
|
)
|
|
|
1,261,100
|
|
Prepaid expenses
|
|
|
—
|
|
|
|
(21,961
|
)
|
|
|
21,961
|
|
TOTAL CURRENT ASSETS
|
|
|
—
|
|
|
|
(1,360,625
|
)
|
|
|
1,360,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIXED ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant & equipment
|
|
|
13,763
|
|
|
|
(4,822,142
|
)
|
|
|
4,835,905
|
|
Accumulated depreciation
|
|
|
(13,763
|
)
|
|
|
986,229
|
|
|
|
(999,992
|
)
|
NET FIXED ASSETS
|
|
|
—
|
|
|
|
(3,835,913
|
)
|
|
|
3,835,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
—
|
|
|
|
(5,196,538
|
)
|
|
|
5,196,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
|
—
|
|
|
|
(797,319
|
)
|
|
|
797,319
|
|
Notes Payable
|
|
|
—
|
|
|
|
(525,000
|
)
|
|
|
525,000
|
|
Notes Payable – related parties
|
|
|
—
|
|
|
|
(506,035
|
)
|
|
|
506,035
|
|
Due to related parties
|
|
|
—
|
|
|
|
(136,631
|
)
|
|
|
136,631
|
|
Interest Payable
|
|
|
—
|
|
|
|
(38,966
|
)
|
|
|
38,966
|
|
Taxes Payable
|
|
|
—
|
|
|
|
(38,171
|
)
|
|
|
38,171
|
|
Contingent Liability
|
|
|
—
|
|
|
|
(3,107,301
|
)
|
|
|
3,107,301
|
|
TOTAL CURRENT LIABILITIES
|
|
|
—
|
|
|
|
(5,149,423
|
)
|
|
|
5,149,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
—
|
|
|
|
(5,149,423
|
)
|
|
|
5,149,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock ($.0001 par value, 100,000,000 authorized, 40,000,000 and 11,552,050 shares issued and outstanding as of March 31, 2011 and December 31, 2010 respectively)
|
|
|
4,000
|
|
|
|
—
|
|
|
|
4,000
|
|
Additional Paid in Capital
|
|
|
743,685
|
|
|
|
(1,777,202
|
)
|
|
|
2,120,887
|
|
Accumulated Other Comprehensive Income
|
|
|
—
|
|
|
|
(131,649
|
)
|
|
|
131,649
|
|
Accumulated Deficit
|
|
|
(747,685
|
)
|
|
|
1,461,736
|
|
|
|
(2,209,421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS’ EQUITY
|
|
|
—
|
|
|
|
(47,115
|
)
|
|
|
47,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
—
|
|
|
|
(5,196,538
|
)
|
|
|
5,196,538
|
|
EXERCISE FOR LIFE SYSTEMS, INC.
STATEMENT OF OPERATIONS
|
|
For The Three Months Ended March 31, 2011
|
|
|
Restated
|
|
Adjustments
|
|
As Filed
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
—
|
|
|
|
(1,081,265
|
)
|
|
|
1,081,265
|
|
Cost of Sales
|
|
|
—
|
|
|
|
406,882
|
|
|
|
(406,882
|
)
|
GROSS PROFITS
|
|
|
—
|
|
|
|
(674,383
|
)
|
|
|
674,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
309
|
|
|
|
(781,159
|
)
|
|
|
781,468
|
|
Professional and consulting fee
|
|
|
483,029
|
|
|
|
363,454
|
|
|
|
119,575
|
|
TOTAL OPERATING EXPENSES
|
|
|
483,338
|
|
|
|
(417,705
|
)
|
|
|
901,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM OPERATIONS
|
|
|
(483,338
|
)
|
|
|
(256,678
|
)
|
|
|
(226,660
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES)
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance income (expenses)
|
|
|
—
|
|
|
|
21,697
|
|
|
|
(21,697
|
)
|
(Loss) on extinguishment of convertible debt
|
|
|
(21,000
|
)
|
|
|
—
|
|
|
|
(21,000
|
)
|
TOTAL OTHER INCOME (EXPENSES)
|
|
|
(21,000
|
)
|
|
|
21,697
|
|
|
|
(42,697
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE TAXES
|
|
|
(504,338
|
)
|
|
|
(234,981
|
)
|
|
|
(269,357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAXES
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS)
|
|
|
(504,338
|
)
|
|
|
(234,981
|
)
|
|
|
(269,357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(0.01
|
)
|
|
|
—
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
40,000,000
|
|
|
|
—
|
|
|
|
40,000,000
|
|
EXERCISE FOR LIFE SYSTEMS, INC.
STATEMENT OF CASH FLOWS
|
|
For The Three Months Ended March 31, 2011
|
|
|
Restated
|
|
Adjustments
|
|
As Filed
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(504,338
|
)
|
|
|
(234,981
|
)
|
|
|
(269,357
|
)
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
309
|
|
|
|
(263,849
|
)
|
|
|
264,158
|
|
Stock based compensation, non-cash
|
|
|
502,880
|
|
|
|
383,305
|
|
|
|
119,575
|
|
(Loss) on extinguishment of Convertible debt
|
|
|
—
|
|
|
|
(21,000
|
)
|
|
|
21,000
|
|
Changes in operating assets and liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Inventories
|
|
|
—
|
|
|
|
378,328
|
|
|
|
(378,328
|
)
|
Interest payable
|
|
|
—
|
|
|
|
(21,695
|
)
|
|
|
21,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES
|
|
|
(1,149
|
)
|
|
|
222,406
|
|
|
|
221,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY (USED IN ) INVESTING ACTIVITIES
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from notes payable
|
|
|
—
|
|
|
|
(175,000
|
)
|
|
|
175,000
|
|
Due to related party
|
|
|
—
|
|
|
|
(20,414
|
)
|
|
|
20,414
|
|
Contribution in additional paid in capital
|
|
|
—
|
|
|
|
(5,040
|
)
|
|
|
5,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
|
|
—
|
|
|
|
(200,454
|
)
|
|
|
200,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
|
|
|
|
|
|
|
|
|
|
|
|
|
AND CASH EQUIVALENTS
|
|
$
|
(1,149
|
)
|
|
$
|
19,654
|
|
|
$
|
(20,803
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
$
|
1,149
|
|
|
$
|
(43,064
|
)
|
|
$
|
44,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
|
—
|
|
|
|
(23,410
|
)
|
|
|
23,410
|
|