Item 1.
BUSINESS
We were formed as a line of business by Actuarial Ideas, Inc., a New York corporation formed in September 1982 and owned by our former president, Mark Cohen, and became a separate legal entity on March 19, 2007 upon our incorporation in Delaware in order to succeed the pension writing segment of Actuarial Ideas, Inc. in which we prepared and drafted all of the pension plans and the amendments and modifications to those plans for the clients of Actuarial Ideas, Inc. In recent years the market demand for defined benefit pension plans declined significantly causing us to discontinue this business.
Acquisition Agreement
On November 16, 2013, we entered into an Acquisition Agreement (the “Acquisition Agreement”) with Creative Edge Nutrition, Inc. (“Creative”) under which, as amended, we acquired the exclusive right to manufacture and sell the natural nutraceutical supplements of Chesapeake Nutraceuticals and Innovative Fulfillment in exchange for 30,000,000 newly-issued shares of our common stock. We will market these nutraceutical products from facilities in Madison Heights, MI and Suwanee, GA.
Spinoff Agreement
On November 16, 2013, we entered into a Spinoff Agreement with Mark Cohen, who was one of our officers and directors, as well as our largest shareholder, under which we agreed to sell all of our assets relating to our business of preparing and modifying pension plans in exchange for all of the liabilities specifically associated with that business and the return by Mr. Cohen of 3,000,000 shares of our common stock. As a result of the Spinoff Agreement we ceased to be a company engaged in preparing and modifying pension plans. The Spinoff Agreement was approved by a majority of our shareholders and a majority of our non-interested shareholders. The operations of the Company prior to the Spinoff are reflected as discontinued operations in the accompanying financial statements.
Change in Management
The Company’s three former officers and directors, Mark Cohen, Richard C. Cohen and Elizabeth A. Cohen, resigned from all officer and director positions with the Company effective as of the closing of the Spinoff Agreement. None of the resignations was a result of any disagreement with the Company on any matter relating to its operations, policies (including accounting or financial policies) or practices.
Immediately thereafter, our board of directors and executive team were reconstituted to consist of:
·
Leonard K. Armenta, Jr., 36, is Chairman, President and a Director. He was an officer with Creative in 2013. For the five years prior to 2013, he served as the Vice President of Business Development for Inner Armour. He will devote 50% of his time to our business.
·
Paul Freet, 48, is a Director and Chief Technical Officer. Since 2008, Mr. Freet has been a Principal of VentureLab associated with Georgia Institute of Technology. Since 1996 he has founded or co-founded TruSOLUTIONS, Racemi, Salestrakr, and Aptidata Corporation. Mr. Freet holds a BS from Georgia Institute of Technology. He will devote 50% of his time to our business.
Other
We cannot take advantage of being an emerging growth company under the JOBS Act because we became a public entity prior to December 8, 2011.
New General Business
Commencing during the second quarter of 2014, we plan to start selling the following nutraceutical products:
Products for Men:
·
Estroblaster - assist in controlling estrogen balances which men get from food, the air, and the water they drink
·
Testo24 - Testosterone booster
·
SextraSerin - Male all natural virility formula
General Health Products
·
ResQ10 - heart health aid delivers CoQ10 and resveratrol to the cells to help strengthen the heart muscle against trauma and injury, lower blood pressure, improve insulin sensitivity, and help manage blood sugar and fat metabolism.
·
ClearProcess - Assist memory and focus
The entire product line is specially formulated based on the science provided by Dr. Ron Blankstein, who has been practicing medicine for over 30 years and is Board Certified in both Internal and Cardiovascular Medicine. All of the products are considered supplements which do not require FDA approvals.
The products will be sold on the Internet. Initial product purchases will be made from Creative. Thereafter, they will be manufactured by outside contractors and shipped from a warehouse in Suwanee, GA which will be subleased from Creative. Mr. Armenta has contacts and experience with numerous contractors. All facilities used will have to meet Certified Good Manufacturing Process standards.
We are developing a website for the Company. In the meantime, we have reached an agreement to use the Creative website.
Competition
Most of our competitors, which include well-known companies and established brands like Gatorade, have significantly greater financial and marketing resources than do we. We will compete in the marketplace emphasizing the quality of our products and offering a full money-back guarantee.
There are no assurances that our approach will be successful.
Intellectual Property
We have no patents or trademarks.
Employees
At May 14, 2014, we had two officers, Messrs. Armenti and Freet, who each devote 50% of their time to us. There are currently no compensation arrangements with Mr. Armenta or any other officer. Such arrangements will be worked out after product shipments begin.
During the second quarter of 2014, we plan on hiring four office and two warehouse employees.
Item 1A.
Item 1A.
RISK FACTORS
You should be aware that there are various risks to an investment in our common stock. You should carefully consider these risk factors, together with all of the other information included in this Form 10-K, before you decide to invest in shares of our common stock.
If any of the following risks develop into actual events, then our business, financial condition, results of operations and/or prospects could be materially adversely affected. If that happens, the market price of our common stock, if any, could decline, and investors may lose all or part of their investment.
Risks Related to the Business
1.
AI has virtually no financial resources. Our independent registered auditors’ report includes an explanatory paragraph stating that there is substantial doubt about our ability to continue as a going concern.
At December 31, 2013, we have an accumulated deficit, a working capital deficiency and no source of debt or equity financing. These factors raise substantial doubt about our ability to continue as a going concern which is dependent upon our ability to achieve profitable operations or obtain adequate financing. Our independent registered auditors included an explanatory paragraph in their opinion on our financial statements as of and for the year ended December 31, 2013 that states that our lack of resources causes substantial doubt about our ability to continue as a going concern. No assurances can be given that we will generate sufficient revenue or obtain necessary financing to continue as a going concern.
2.
AI is and will continue to be completely dependent on the services of Messrs. Armenti and Freet, the loss of whose services may cause our business operations to cease. We will need to engage and retain qualified employees and consultants to further implement our strategy.
AI’s operations and business strategy are significantly dependent upon the knowledge and business contacts of Messrs. Armenti and Freet, our two executive officers. They are under no contractual obligation to remain employed by us. If they should choose to leave us for any reason before we have hired additional personnel, our operations may fail. Even if we are able to find additional personnel, it is uncertain whether we could find someone who could develop our business along the lines described herein. We will fail without Messrs. Armenti and Freet or an appropriate replacement(s). We intend to acquire key-man life insurance on the lives of Messrs. Armenti and Freet naming us as the beneficiary when and if we obtain the resources to do so, and they remain insurable. We have not yet procured such insurance, and there is no guarantee that we will be able to obtain such insurance in the future. Accordingly, it is important that we are able to attract, motivate and retain highly qualified and talented personnel and independent contractors.
3.
Many of our likely competitors have significantly greater financial and marketing resources than do we.
Many of our likely competitors have significantly greater financial and marketing resources than do we. Many of these competitors have sophisticated management, are in a position to purchase inventory at the lowest prices and have the ability to advertise in a wide variety of media, including television. There are no assurances that our brand will be successful.
4.
We are impacted by new laws, income tax rulings and accounting and financial reporting requirements. Changes in some or all of these rules and regulations can reduce the demand for pension plans significantly.
Pensions are impacted significantly by Federal laws, income tax rulings and accounting and financial reporting requirements. These rules and regulations impact the timing of pension plan funding, the timing and amount of pension costs that are deductible for income tax purposes and the amount of pension costs and liabilities that must be reported in a pension sponsor’s financial statements. Changes in laws and regulations may make sponsoring or continuing to sponsor pension plans less attractive or affordable to plan sponsors. Reductions in plan sponsorship also reduce our potential client base. Significant reductions in client base would have a material adverse effect on our business and our operating results.
5.
Messrs. Armenti and Freet, our principal executive officers, have no meaningful financial accounting or financial reporting education or experience and, accordingly, our ability to timely meet Exchange Act reporting requirements is dependent to a significant degree upon the advice and counsel of others.
Messrs. Armenti and Freet, our principal executive officers, have no meaningful financial reporting education or experience. They are heavily dependent on advisors and consultants to provide guidance and counsel in these areas. As such, there is risk about our ability to comply with all financial reporting requirements accurately and on a timely basis.
6.
We are subject to the periodic reporting requirements of the Securities Exchange Act of 1934, which requires us to incur accounting and legal fees in connection with the preparation of such reports. These additional costs could reduce or eliminate our ability to fund our operations and may prevent us from meeting our normal business obligations.
We are subject to file periodic reporting requirements of the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder. In order to comply with these regulations, our independent registered public accounting firm has to review our financial statements on a quarterly basis and audit our financial statements on an annual basis. Moreover, our legal counsel has to review and assist in the preparation of such reports. The future costs charged by these professionals for such services cannot be accurately predicted at this time because factors such as the number and type of transactions that we engage in and the complexity of our reports cannot be determined at this time and will have a major effect on the amount of time to be spent by our auditors and attorneys.
We do not have a sufficient number of employees to segregate responsibilities and may be unable to afford increasing our staff or engaging outside consultants or professionals to overcome our lack of employees. Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to help prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock, if a market ever develops, could drop significantly.
7.
We have only two directors, which limits our ability to establish effective independent corporate governance procedures and increases the control of our president.
We have only tw0 directors. Accordingly, we cannot establish board committees comprised of independent members to oversee functions like compensation or audit issues.
Until we have a larger board of directors which would include some independent members, if ever, there will be limited oversight of our president’s decisions and activities and little ability for minority shareholders to challenge or reverse those activities and decisions, even if they are not in the best interests of minority shareholders.
8.
There are significant potential conflicts of interest
Neither of our key personnel (two persons) is required to commit a specified amount of time to our affairs and, accordingly, these individuals, particularly our president, may have conflicts of interest in allocating management time among various business activities. In the course of other business activities, certain key personnel (particularly our president) may become aware of business opportunities which may be appropriate for presentation to us, as well as the other entities with which they are affiliated. As such, there may be conflicts of interest in determining to which entity a particular business opportunity should be presented.
Risks Related to Our Common Stock
9.
Shareholders may be diluted significantly through our efforts to obtain financing and satisfy obligations through issuance of additional shares of our common stock.
We have no committed source of financing. Wherever possible, our board of directors will attempt to use non-cash consideration to satisfy obligations. In many instances, we believe that the non-cash consideration will consist of restricted shares of our common stock. Our board of directors has authority, without action or vote of the shareholders, to issue all or part of the authorized but unissued common shares. In addition, if a trading market develops for our common stock, we may attempt to raise capital by selling shares of our common stock, possibly at a discount to market. These actions will result in dilution of the ownership interests of existing shareholders, may further dilute common stock book value, and that dilution may be material. Such issuances may also serve to enhance existing management’s ability to maintain control of AI because the shares may be issued to parties or entities committed to supporting existing management.
10.
Our articles of incorporation provide for indemnification of officers and directors at our expense and limit their liability which may result in a major cost to us and hurt the interests of our shareholders because corporate resources may be expended for the benefit of officers and/or directors.
Our articles of incorporation and applicable Delaware law provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against attorney's fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities on our behalf. We will also bear the expenses of such litigation for any of our directors, officers, employees, or agents, upon such person's written promise to repay us therefore if it is ultimately determined that any such person shall not have been entitled to indemnification. This indemnification policy could result in substantial expenditures by us which we may never be unable to recoup.
We have been advised that, in the opinion of the SEC, indemnification for liabilities arising under federal securities laws is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification for liabilities arising under federal securities laws, other than the payment by us of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding, is asserted by a director, officer or controlling person in connection with the securities being registered, we will (unless in the opinion of our counsel, the matter has been settled by controlling precedent) submit to a court of appropriate jurisdiction, the question whether indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The legal process relating to this matter if it were to occur is likely to be very costly and may result in us receiving negative publicity, either of which factors are likely to materially reduce the market and price for our shares, if such a market ever develops.
11.
Currently, there is no public market for our securities, and there can be no assurances that any public market will ever develop or that our common stock will be quoted for trading and, even if quoted, it is likely to be subject to significant price fluctuations.
There has not been any trading market for our common stock, and there is currently (and never has been) any public market whatsoever for our securities. Notwithstanding the fact that a trading symbol (AIDC) had been assigned to our common stock by FINRA (and subsequently OTCBB quoting and trading privilege were lost for failure to file timely this Form 10-K and other required periodic filings), there can be no assurance that:
·
the OTCBB quoting and trading privilege will be recovered;
·
any market for our shares will develop;
·
the prices at which our common stock will trade; or
·
the extent to which investor interest in us will lead to the development of any active, liquid trading market. Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders for investors.
Also, failure to remain current in our future periodic reports with the SEC would lead to loss of OTCBB quoting privileges if they are recovered following the filing of all currently delinquent filings.
In addition, our common stock is unlikely to be followed by any market analysts, and there may be few institutions acting as market makers for our common stock. Either of these factors could adversely affect the liquidity and trading price of our common stock. Until our common stock is fully distributed and an orderly market develops in our common stock, if ever, the price at which it trades is likely to fluctuate significantly. Prices for our common stock will be determined in the marketplace and may be influenced by many factors, including the depth and liquidity of the market for shares of our common stock, developments affecting our business, including the impact of the factors referred to elsewhere in these Risk Factors, investor perception of AI and general economic and market conditions. No assurances can be given that an orderly or liquid market will ever develop for the shares of our common stock.
Because of the anticipated low price of the securities, many brokerage firms may not be willing to effect transactions in our securities.
12.
Without a public market there is no liquidity for our shares of common stock, and our shareholders may never be able to sell their shares, which may result in a total loss of their investment.
Our common shares are not listed on any exchange or quotation system. There currently is no market for our shares. Consequently, our shareholders will not be able to sell their shares in an organized market place and may have to sell their shares privately. If this happens, our shareholders might not receive a price per share which they might otherwise have received had there been a public market for our shares.
13.
Legislation, including the Sarbanes-Oxley Act of 2002, may make it more difficult for us to retain or attract officers and directors.
The Sarbanes-Oxley Act of 2002 was enacted in response to public concerns regarding corporate accountability in connection with recent accounting scandals. The stated goals of the Sarbanes-Oxley Act are to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies, and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. The Sarbanes-Oxley Act generally applies to all companies that file or are required to file periodic reports with the SEC, under the Securities Exchange Act of 1934. We are required to comply with the Sarbanes-Oxley Act. The enactment of the Sarbanes-Oxley Act of 2002 has resulted in a series of rules and regulations by the SEC that increase responsibilities and liabilities of directors and executive officers. The perceived increased personal risk associated with these recent changes may deter qualified individuals from accepting these roles. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. We continue to evaluate and monitor developments with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
14.
Any market that develops in shares of our common stock will be subject to the penny stock regulations and restrictions which will create a lack of liquidity and make trading difficult or impossible.
The trading of our securities, if any, will be in the over-the-counter market which is commonly referred to as the OTCBB as maintained by FINRA. As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations as to the price of our securities.
Rule 3a51-1 of the Securities Exchange Act of 1934 establishes the definition of a "penny stock," for purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to a limited number of exceptions. It is likely that our shares will be considered to be penny stocks for the immediately foreseeable future. This classification severely and adversely affects the market liquidity for our common stock.
For any transaction involving a penny stock, unless exempt, the penny stock rules require that a broker or dealer approve a person's account for transactions in penny stocks and the broker or dealer receive from the investor a written agreement to the transaction setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person's account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience and objectives of the person and make a reasonable determination that the transactions in penny stocks are suitable for that person and that that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the SEC relating to the penny stock market, which, in highlight form, sets forth:
·
the basis on which the broker or dealer made the suitability determination, and
·
that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Disclosure also has to be made about the risks of investing in penny stock in both public offerings and in secondary trading and commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
Because of these regulations, broker-dealers may not wish to engage in the above-referenced necessary paperwork and disclosures and/or may encounter difficulties in their attempt to sell shares of our common stock, which may affect the ability of selling shareholders or other holders to sell their shares in any secondary market and have the effect of reducing the level of trading activity in any secondary market. These additional sales practice and disclosure requirements could impede the sale of our securities, if and when our securities become publicly traded. In addition, the liquidity for our securities may decrease, with a corresponding decrease in the price of our securities. Our shares, in all probability, will be subject to such penny stock rules for the foreseeable future and our shareholders will, in all likelihood, find it difficult to sell their securities.
15.
The market for penny stocks has experienced numerous frauds and abuses which could adversely impact investors in our stock.
We believe that the market for penny stocks has suffered from patterns of fraud and abuse. Such patterns include:
·
Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
·
Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;
·
"Boiler room" practices involving high pressure sales tactics and unrealistic price projections by sales persons;
·
Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and
·
wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses.
16.
If our common stock is quoted on the OTCBB and a public market for our common stock develops, short selling could increase the volatility of our stock price.
Short selling occurs when a person sells shares of stock which the person does not yet own and promises to buy stock in the future to cover the sale. The general objective of the person selling the shares short is to make a profit by buying the shares later, at a lower price, to cover the sale. Significant amounts of short selling, or the perception that a significant amount of short sales could occur, could depress the market price of our common stock. In contrast, purchases to cover a short position may have the effect of preventing or retarding a decline in the market price of our common stock, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of our common stock. As a result, the price of our common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued at any time. These transactions may be effected on over-the-counter bulletin board or any other available markets or exchanges. Such short selling if it were to occur could impact the value of our stock in an extreme and volatile manner to the detriment of our shareholders.
17.
Our shares may not become eligible to be traded electronically which would result in brokerage firms being unwilling to trade them.
If we become able to have our shares of common stock quoted on the OTCBB, we will then try, through a broker-dealer and its clearing firm, to become eligible with the Depository Trust Company ("DTC") to permit our shares to trade electronically. If an issuer is not “DTC-eligible,” then its shares cannot be electronically transferred between brokerage accounts, which, based on the realities of the marketplace as it exists today (especially the OTCBB), means that shares of a company will not be traded (technically the shares can be traded manually between accounts, but this takes days and is not a realistic option for companies relying on broker dealers for stock transactions - like all companies on the OTCBB. What this boils down to is that while DTC-eligibility is not a requirement to trade on the OTCBB, it is a necessity to process trades on the OTCBB if a company’s stock is going to trade with any volume. There are no assurances that our shares will ever become DTC-eligible or, if they do, how long it will take.
18.
Any trading market that may develop may be restricted by virtue of state securities “Blue Sky” laws which prohibit trading absent compliance with individual state laws. These restrictions may make it difficult or impossible to sell shares in those states.
There is no established public market for our common stock, and there can be no assurance that any established public market will develop in the foreseeable future. Transfer of our common stock may also be restricted under the securities or securities regulations laws promulgated by various states and foreign jurisdictions, commonly referred to as “Blue Sky” laws. Absent compliance with such individual state laws, our common stock may not be traded in such jurisdictions. Because our securities have not been registered for resale under the blue sky laws of any state, the holders of such shares and persons who desire to purchase them in any trading market that might develop in the future, should be aware that there may be significant state blue sky law restrictions upon the ability of investors to sell the securities and of purchasers to purchase the securities. These restrictions prohibit the secondary trading of our common stock. Accordingly, investors should consider the secondary market for our securities to be a limited one.
19.
Our board of directors has the authority, without stockholder approval, to issue preferred stock with terms that may not be beneficial to common stockholders and with the ability to affect adversely stockholder voting power and perpetuate their control over AI.
Our articles of incorporation allow us to issue shares of preferred stock without any vote or further action by our stockholders. Our board of directors has the authority to fix and determine the relative rights and preferences of preferred stock. Our board of directors also has the authority to issue preferred stock without further stockholder approval, including large blocks of preferred stock. As a result, our board of directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock.
20.
We do not expect to pay dividends in the foreseeable future.
We have never paid cash dividends on our common stock. We do not expect to pay cash dividends on our common stock at any time in the foreseeable future. The future payment of dividends directly depends upon our future earnings, capital requirements, financial requirements and other factors that our board of directors will consider. Since we do not anticipate paying cash dividends on our common stock, return on your investment, if any, will depend solely on an increase, if any, in the market value of our common stock.
21.
Because we are not subject to compliance with rules requiring the adoption of certain corporate governance measures, our stockholders have limited protections against interested director transactions, conflicts of interest and similar matters.
The Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by the SEC, the New York and American Stock Exchanges and NASDAQ Stock Market, as a result of Sarbanes-Oxley, require the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities which are listed on those exchanges or NASDAQ Stock Market. Because we are not presently required to comply with many of the corporate governance provisions and because we chose to avoid incurring the substantial additional costs associated with such compliance any sooner than necessary, we have not yet adopted these measures.
Because none of our directors are independent directors, we do not currently have independent audit or compensation committees. As a result, these directors have the ability, among other things, to determine their own level of compensation. Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our stockholders without protections against interested director transactions, conflicts of interest and similar matters and investors may be reluctant to provide us with funds necessary to expand our operations. We intend to comply with all corporate governance measures relating to director independence as
, if
and when required.
22.
You may have limited access to information regarding our business because our obligations to file periodic reports with the SEC could be automatically suspended under certain circumstances.
We currently are trying to file all delinquent filings. However, our reporting obligations are automatically suspended by operation of statute under Section 15(d) of the Securities Exchange Act of 1934 if we have less than 300 shareholders or have not filed a registration statement on Form 8A. If this occurs after the year in which our Registration Statement became effective, we may file periodic reports voluntarily with the SEC, but will no longer be obligated to file those periodic reports with the SEC and your access to our business information would then be even more restricted. We are not required to furnish proxy statements to security holders and our directors, officers and principal beneficial owners are not be required to report their beneficial ownership of securities to the SEC pursuant to Section 16 of the Securities Exchange Act of 1934 until we have both 500 or more security holders and greater than $10 million in assets and are required to register our shares under Section 12 of the Exchange Act. This means that your access to information regarding our business will be limited.
For all of the foregoing reasons and others set forth herein, an investment in the Company’s securities in any market which may develop in the future involves a high degree of risk. Any person considering an investment in such securities should be aware of these and other risk factors set forth in this Form 10-K.
Item 1B.
Item 1B.
UNRESOLVED STAFF COMMENTS
None
Item 2.
Item 2.
PROPERTIES
Our office and mailing address is 355 Brogden Road, Suite 205, Suwanee, GA 30024. We sublease our space from Creative for $1,000 per month starting in April 2014 through September 2014 and $1,500 per month for the following 12 months. There are no separate lease agreements.
Item 3.
Item 3.
LEGAL PROCEEDINGS
We are not a party to any pending, or to our knowledge, threatened litigation of any type.
Item 4.
Item 4.
MINE SAFETY DISCLOSURES
N/A
Part II
Item 5.
Item 5.
MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND PURCHASES OF EQUITY SECURITIES
There is no current market for the shares of our common stock despite the fact that a symbol has been assigned for our securities (AIDC). We subsequently received an OTCBB Delinquency Notification which advised us that, pursuant to NASD Rule 650, unless the delinquency (failure to file our Form 10-K and other required filings on a timely basis) was cured, our securities would not be eligible for OTCBB quotation. The delinquency was not cured by the date required. We became current with all required filings in May 2013 and will seek a broker-dealer to make the necessary 211 filings to permit our common stock to be quoted on the OTCBB. We cannot predict the likelihood of finding a broker-dealer to make the filing or, if the filing is made, the likelihood of FINRA permitting our shares of common stock to be quoted on the OTCBB.
There can be no assurance that a liquid market will develop in the foreseeable future. Transfer of our common stock may also be restricted under the securities or blue sky laws of certain states and foreign jurisdictions. Consequently, investors may not be able to liquidate their investments and should be prepared to hold the common stock for an indefinite period of time.
We have never paid any cash dividends on shares of our common stock and do not anticipate that we will pay dividends in the foreseeable future. We intend to apply any earnings to fund the development of our business. The purchase of shares of common stock is inappropriate for investors seeking current or near term income.
On March 19, 2007 (our incorporation date), 9,230,000 shares were issued to Mark Cohen, our president and founder, who agreed that the Company will write all of the pension plans for his clients served by Actuarial Ideas, Inc. On March 26, 2007, an additional 770,000 common shares were issued to 28 additional shareholders (exclusive of 12 minors whose shares are being held by their respective parents on their behalf) at $.001 per share for $770 in cash.
During the fourth quarter of 2013, we were involved in the following stock transactions:
·
Entered into the Acquisition Agreement Creative under which, as amended, we acquired the exclusive right to manufacture and sell the natural nutraceutical supplements in exchange for 30,000,000 newly-issued shares of our common stock.
·
Issued 42,000,000 shares of our common stock relating to the full conversion of a Convertible Note that had been issued in December 2009.
·
Issued 16,500,000 shares of our common stock for services, including 6,000,000 to officers.
·
Mr. Cohen returned 3,000,000 shares of our common stock to our treasury in exchange for the actuarial business that had been discontinued.
No underwriter participated in any of the foregoing transactions, and no underwriting discounts or commissions were paid, nor was any general solicitation or general advertising conducted. The securities bear a restrictive legend, and stop transfer instructions are noted on the stock transfer records of our Company.
The foregoing issuances of securities were affected in reliance upon the exemption from registration provided by section 4(2) under the Securities Act of 1933, (the “Act”) as amended.
As of the close of business on May 14, 2014, there were 95,500,000 shares were issued and outstanding.
Blue Sky Considerations
Because our securities have not been registered for resale under the blue sky laws of any state, the holders of such shares and persons who desire to purchase them in any trading market that might develop in the future, should be aware that there may be significant state blue-sky law restrictions upon the ability of investors to sell the securities and of purchasers to purchase the securities. Accordingly, investors should consider any secondary market for the Company’s securities to be a limited one.
Item 6
Item 6
SELECTED FINANCIAL DATA
We are considered to be a smaller reporting company, as defined by Rule 229.10(f)(1), and, therefore, are not required to provide the information required by this Item.
NOTES REGARDING FORWARD LOOKING STATEMENTS
Certain matters discussed herein are forward-looking statements. Such forward-looking statements contained in this Form 10-K involve risks and uncertainties, including statements as to:
·
our future operating results;
·
our business prospects;
·
our contractual arrangements and relationships with both third parties and related parties;
·
the dependence of our future success on the general economy;
·
our possible financings; and
·
the adequacy of our cash resources and working capital
These forward-looking statements can generally be identified as such because the context of the statement will include words such as we “believe," “anticipate,” “expect,” “estimate” or words of similar meaning. Similarly, statements that describe our future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those anticipated as of the date of this Annual Report on Form 10-K. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this Annual Report on Form 10-K, and we undertake no obligation to publicly update such forward-looking statements other than as may be required by applicable law, to reflect subsequent events or circumstances.
Item 7.
Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We were formed as a line of business by Actuarial Ideas, Inc., a New York corporation formed in September 1982 and owned by our former president, Mark Cohen, and became a separate legal entity on March 19, 2007 upon our incorporation in Delaware in order to succeed the pension writing segment of Actuarial Ideas, Inc. in which we prepared and drafted all of the pension plans and the amendments and modifications to those plans for the clients of Actuarial Ideas, Inc. In recent years the market demand for defined benefit pension plans declined significantly causing us to discontinue this business. We then acquired the right to market and sell nutraceutical products. Sales of these products will commence during the first quarter of 2014.
All operations of the actuarial business have been reclassified to Discontinued Operations. The only costs shown in continuing operations relate to corporate expenses such as audit and consulting fees as well as fees associated with planning for the acquisition of the nutraceutical product rights and related planning. A substantial portion of these expenses were satisfied through the issuance of common stock.
Liquidity
In September 2012, we received an unsolicited cash contribution of capital from business associates of our former President in the amount of $12,500 which was used to pay accrued obligations.
As a corporate policy, we will not incur any cash obligations that we cannot satisfy with known resources, as are described below and/or elsewhere herein. We believe that the perception that many people have of a public company make it more likely that they will accept securities from a public company as consideration for indebtedness to them than they would from a private company. We have not performed any studies of this matter. Our conclusion is based on our own observations. However, there can be no assurances that we will be successful in any of those efforts. Additionally, issuance of shares would necessarily dilute the percentage of ownership interest of our stockholders.
Issuing restricted shares of our common stock to independent subcontractors or others who may be in a position to refer business or customers to us would enable us to operate and expand our business more effectively. Having shares of our common stock may also give such entities a greater feeling of identity with us which may result in more referred business. Conversely, such issuances of our shares would necessarily dilute the percentage of ownership interest of our existing stockholders.
Despite the fact our president is willing to consider providing us with a loan or advance to us on a case by case basis his resources are not unlimited. We do not believe that we can rely on the likelihood of any significant advance if we are unable to pay standard operating costs. AI does not have any credit facilities or other commitments for debt or equity financing. No assurances can be given that advances when needed will be available. We do not believe that we need funding to undertake our operations at our current level because we do not have a capital intensive business or a significant amount of fixed costs. We do no advertising.
We currently are unaware of any required material cash requirements over the next 12 months other than for professional fees. We believe that we can meet these requirements given the loan commitment from our president provided that revenues over the next 12 months do not decrease over those from the prior 12 months.
We incurred $42,000 of legal costs in connection with our decision to become publicly reporting. In December 2009, we entered into a convertible note payable with our outside counsel, Gary B. Wolff, to satisfy the obligation. The convertible note was payable on demand, bore interest at 2% per annum, and was convertible into shares of our common stock at a price per share equal to par value. The Note, portions of which were sold by Mr. Wolff to other holders, was fully converted during the fourth quarter of 2013.
Private capital, if sought, will be sought from former business associates of our president or private investors referred to us by those business associates. To date, we have not sought any funding source and have not authorized any person or entity to seek out funding on our behalf. If a market for our shares ever develops, of which there can be no assurances, we may use shares of our common stock to compensate employees/consultants and independent contractors.
By having become a public company we have incurred and will continue to incur additional significant expenses for legal, accounting and related services. By being subject to the reporting requirements of the Exchange Act of '34, we will incur ongoing expenses associated with professional fees for accounting, legal and a host of other expenses. We estimate that these costs will range up to $50,000 per year for the next few years and will be higher if our business volume and activity increases but lower during the immediate future because our overall business volume may be lower. These obligations will reduce our ability and resources to fund other aspects of our business. We hope to be able to use our status as a public company to increase our ability to use noncash means of settling day-to-day business obligations and compensate any independent contractors who provide professional services to us, although there can be no assurances that we will be successful in any of those efforts. We will reduce the cash compensation levels paid to our president if there is insufficient cash generated from operations to satisfy these costs. If we reduce the cash paid to our president, the unpaid balance, without interest, will be accrued as a liability until paid. We may also seek outside investments or credit facilities to meet levels of obligations that exceed our cash flow. However, we can provide no assurances that we will be successful in obtaining financing or satisfying all required costs.
Off Balance Sheet Arrangements
We do not have any transactions, arrangements and other relationships with unconsolidated entities that will affect our liquidity or capital resources. We have no special purpose entities that provide off-balance sheet financing, liquidity or market or credit risk support, nor do we engage in swap agreements, or outsourcing of research and development services, that could expose us to liability that is not reflected on the face of our financial statements.
Recent Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Critical Accounting Policies
The preparation of financial statements and related notes requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.
An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements.
Financial Reporting Release No. 60 requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. Note 3 to the financial statements, included elsewhere in this Annual Report on Form 10-K, includes a summary of the significant accounting policies and methods used in the preparation of our financial statements.
Seasonality
We will start selling our new products during the first quarter of 2014. At this point, we are unaware of any seasonality affecting demand.
Item 7A.
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item.
Item 8.
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our financial statements as of December 31, 2013 and the year then ended start on page.
Item 9.
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
NONE
Item 9A.
Item 9A.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our principal executive officer to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, the Company recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance of achieving the desired control objectives, and we necessarily are required to apply our judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.
Evaluation of disclosure and controls and procedures
Based on his evaluation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this annual report on Form 10-K the Company's principal executive officer has concluded that the Company's disclosure controls and procedures did operate in an effective manner as of December 31, 2013.
Management's Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles. Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Internal control over financial reporting is defined, under the Exchange Act, as a process designed by, or under the supervision of, the issuer's principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer'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 generally accepted accounting principles 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 issuer;
·
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and
·
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer's assets that could have a material effect on the financial statements.
The Company's principal executive officer has assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2013. In making this assessment, the Company's principal executive officer was guided by the releases issued by the SEC and to the extent applicable the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's principal executive officer has concluded that based on his assessment, as of December 31, 2013, the Company's procedures of internal control over financial reporting were not operating in an effective manner. The deficiency resulted in the late filing of our Form 10K. The late filing resulted from a lack of financial resources to takes the steps required for a complete and accurate filing of our annual report on from 10K including audited financial statements. We have made several steps to cure this deficiency including signing a product acquisition agreement with Creative Edge Nutrition, Inc., changed management and control of the organization and are implementing new financial reporting systems,.
Readers are cautioned that internal control over financial reporting, no matter how well designed, has inherent limitations and may not prevent or detect misstatements. Therefore, even effective internal control over financial reporting can only provide reasonable assurance with respect to the financial statement preparation and presentation.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company's internal control over financial reporting(as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the last quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.
Item 9B
Item 9B
OTHER INFORMATION
None.
PART III
Item 10.
Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Our executive officers and directors are as follows:
Leonard K. Armenta, Jr. became Chairman, President and a Director in November 2013. He was an officer with Creative in 2013. For the five years prior to 2013, he served as the Vice President of Businss Development for Inner Armour. He will devote 50% of his time to our business.
Paul Freet became a Director and Chief Technical Officer in November 2013. Since 2008, Mr. Freet has been a Principal of VentureLab associated with Georgia Institute of Technology. Since 1996 he has founded or co-founded TruSOLUTIONS, Racemi, Salestrakr, and Aptidata Corporation. Mr. Freet holds a BS from Georgia Institute of Technology. He will devote 50% of his time to our business.
The term of office of each director expires at our annual meeting of stockholders or until their successors are duly elected and qualified. No officer or director has any prior history with a blank check company.
Possible Potential Conflicts
The OTCBB on which our shares of common stock may be quoted does not have any director independence requirements.
No member of management is or will be required by us to work on a full time basis. Accordingly, certain conflicts of interest may arise between us and our officers and directors in that they may have other business interests in the future to which they devote their attention, and they may be expected to continue to do so although management time must also be devoted to our business. As a result, conflicts of interest may arise that can be resolved only through their exercise of such judgment as is consistent with each officer's understanding of his fiduciary duties to us.
Currently we have only three officers, all of whom are related to each other and also serve as directors, and are in the process of seeking to add additional officer(s) and/or director(s) as and when the proper personnel are located and terms of employment are mutually negotiated and agreed.
Board of Directors
All directors hold office until the completion of their term of office, which is not longer than one year, or until their successors have been elected. All officers are appointed annually by the board of directors and, subject to existing employment agreements (of which there are currently none), serve at the discretion of the board. Currently, directors receive no compensation for their role as directors but receive compensation for their role as officers. The terms of office of our directors expire on December 31, 2014.
Involvement in Certain Legal Proceedings
Except as described below, during the past five years, no present director, executive officer or person nominated to become a director or an executive officer of ­­­­­­­­AI:
1.
had a petition under the federal bankruptcy laws or any state insolvency law filed by or against, or a receiver, fiscal agent or similar officer appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;
2.
was convicted in a criminal proceeding or subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
3.
was subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any of the following activities:
i.
acting as a futures commission merchant, introducing broker, commodity trading advisor commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
ii.
engaging in any type of business practice; or
iii.
engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws; or
4.
was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of an federal or state authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (3) (i), above, or to be associated with persons engaged in any such activity; or
5.
was found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and for which the judgment has not been reversed, suspended or vacated.
Committees of the Board of Directors
Concurrent with having sufficient members and resources, the AI board of directors will establish an audit committee and a compensation committee. We believe that we will need a minimum of five directors to have effective committee systems. The audit committee will review the results and scope of the audit and other services provided by the independent auditors and review and evaluate the system of internal controls. The compensation committee will manage our stock option plan and review and recommend compensation arrangements for the officers. No final determination has yet been made as to the memberships of these committees or when we will have sufficient members to establish committees.
All directors will be reimbursed by AI for any expenses incurred in attending directors' meetings provided that AI has the resources to pay these fees. AI will consider applying for officers and directors liability insurance at such time when it has the resources to do so.
Code of Business Conduct and Ethics
In December 2009 we adopted a Code of Ethics and Business Conduct which is applicable to our future employees and which also includes a Code of Ethics for our CEO and principal financial officers and persons performing similar functions. A code of ethics is a written standard designed to deter wrongdoing and to promote:
·
honest and ethical conduct,
·
full, fair, accurate, timely and understandable disclosure in regulatory filings and public statements,
·
compliance with applicable laws, rules and regulations,
·
the prompt reporting violation of the code, and
·
accountability for adherence to the code.
Item 11
Item 11
EXECUTIVE COMPENSATION
The following table shows for the periods ended December 31, 2013 and 2012, compensation awarded to or paid to, or earned by, our Chief Executive Officer, Treasurer and Secretary (the “Named Executive Officers”).
There are currently no compensation arrangements with Mr. Armenta or any other officer. Such arrangements will be worked out after product shipments begin.
Outstanding Equity Awards at Fiscal Year End
There are no outstanding equity awards at December 31, 2013.
Item 12
Item 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
As of May 14, 2014, we had 95,500,000 shares of common stock outstanding. The chart below sets forth the ownership, or claimed ownership, of certain individuals and entities. This chart discloses those persons known by the board of directors to have or to claim to have, beneficial ownership of more than 5% of the outstanding shares of our common stock as of May 14, 2014; of all directors and executive officers of AI; and of our directors and officers as a group:
Item 13.
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
We incurred $42,000 of legal costs in connection with our decision to become publicly reporting. In December 2009, we entered into a convertible note payable with our outside counsel, Gary B. Wolff, to satisfy the obligation. The convertible note was payable on demand, bore interest at 2% per annum, and was convertible into shares of our common stock at a price per share equal to par value. The Note, portions of which were sold by Mr. Wolff to other holders, was fully converted during the fourth quarter of 2013.
Our office and mailing address is 355 Brogden Road, Suite 205, Suwanee, GA 30024. We sublease our space from Creative for $1,000 per month starting in April 2014 through September 2014 and $1,500 per month for the following 12 months. There are no separate lease agreements.
Director Independence
For purposes of determining director independence, we have applied the definitions set out in NASDAQ Rule 4200(a)(15). Under NASDAQ Rule 4200(a)(15), a director is not considered to be independent if he or she is also an executive officer or employee of the corporation. Accordingly, we do not have an independent director.
Item 14.
Item 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees: Audit fees consist of fees billed for professional services rendered for the audit of our year-end financial statements and services in connection with statutory and regulatory filings. Audit fees amounted to $17,610 in 2013.
Audit-Related Fees: Audit-related services consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.” These services include attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards and were not incurred for 2013.
Tax Services Fees: Tax fees consist of fees billed for professional services for tax compliance. These services include assistance regarding federal, state, and local tax compliance. Tax fees were not incurred during the calendar year ended December 31, 2013.
All Other Fees: Other fees, which were not incurred, would include fees for products and services other than the services reported above.
PART IV
Item 15.
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a.
Exhibits
31.1
Certification of Chief Executive Officer
31.2
Certification of Chief Financial Officer
b.
Financial Statements and Schedules
Financial Statements:
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
AI Document Services, Inc.
Monsey, New York
We have audited the accompanying balance sheets of AI Document Services, Inc. (the “Company”) as of December 31, 2013 and 2012, and the related statements of operations, stockholders’ deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluation the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AI Document Services, Inc. as of December 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared on a going concern basis which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As discussed in Note 3 to the Company’s financial statements, , the Company has an accumulated deficit of $165,452, a working capital deficiency of $56,452 and no source of debt or equity financing. It has acquired the right to manufacture and sell nutraceutical products but cannot provide assurances about the likelihood or timing of developing profitability from this new business endeavor. These factors raise substantial doubt about the Company’s ability to continue as a going concern which is dependent upon the Company’s ability to achieve profitable operations or obtain adequate financing. The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.
L.L. Bradford & Company
/s/ L.L. Bradford & Company
Houston, Texas
May 15, 2014
AI DOCUMENT SERVICES, INC.
Balance Sheets
December 31, 2013 and 2012
The accompanying notes are an integral part of these financial statements
AI DOCUMENT SERVICES, INC.
Statements of Operations
For the Years Ended December 31, 2013 and 2012
The accompanying notes are an integral part of these financial statements.
AI DOCUMENT SERVICES, INC.
Statement of Stockholders’ Deficit
For the Years Ended December 31, 2013 and 2012
The accompanying notes are an integral part of these financial statements.
AI DOCUMENT SERVICES, INC.
Statements of Cash Flows
For the Years Ended December 31, 2013 and 2012
The accompanying notes are an integral part of these financial statements.
AI DOCUMENT SERVICES, INC.
December 31, 2013 and 2012
Notes to the Financial Statements
NOTE 1 -
ORGANIZATION AND OPERATIONS
AI Document Services, Inc. (the “Company”) was formed as a line of business by Actuarial Ideas, Inc. in 1982 and became a separate legal entity, incorporated in the State of Delaware, on March 19, 2007 involved in preparing and drafting pension plans. In recent years the market demand for defined benefit pension plans declined significantly causing the Company to discontinue this business during the fourth quarter of 2013.
In November 2013, the Company entered into an Acquisition Agreement (the “Acquisition Agreement”) with Creative Edge Nutrition, Inc. (“Creative”) under which, as amended, the Company acquired the exclusive right to manufacture and sell the natural nutraceutical supplements of Chesapeake Nutraceuticals and Innovative Fulfillment in exchange for 30,000,000 newly-issued shares of its common stock. The Company will market these nutraceutical products from facilities in Madison Heights, MI and Suwanee, GA.
In November 2013, the Company entered into a Spinoff Agreement with Mark Cohen, who was one of its officers and directors, as well as largest shareholder, under which the Company agreed to sell all of its assets relating to the business of preparing and modifying pension plans in exchange for all of the liabilities specifically associated with that business and the return by Mr. Cohen of 3,000,000 shares of the Company’s common stock. As a result of the Spinoff Agreement the Company ceased to be engaged in preparing and modifying pension plans. The operations of the Company prior to the Spinoff are reflected as discontinued operations in the accompanying financial statements
The Company cannot take advantage of being an emerging growth company under the JOBS Act because it had gone public prior to December 8, 2011.
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Use of Estimates
The preparation of financial statements in conformity with GAAP requires that management make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The level of uncertainty in estimates and assumptions increases with the length of time until the underlying transactions are completed. Actual results may differ from these estimates in amounts that may be material to the financial statements and accompanying notes.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Accounts Receivable
Accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on historical write-off experience, customer specific facts and economic conditions. Bad debt expense is included in general and administrative expenses, if any.
Outstanding account balances are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure to its customers.
Accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. If the financial condition of the Company’s customer was to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has made reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable
Fair Value of Financial Instruments
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in U.S. GAAP, and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
The carrying amounts of the Company’s financial assets and liabilities, such as cash, and accrued expenses loan payable from related party, approximate their fair values because of the short maturity of these instruments.
The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value at December 31, 2013 and 2012, nor gains or losses are reported in the statement of operations that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the years ended December 31, 2013 and 2012.
Revenue Recognition
The Company follows the guidance of the United States Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) No. 101 Revenue Recognition, as amended by SAB No. 104 for revenue recognition. The Company recognizes revenues when it has completed the writing or amending of a pension plan and the amount earned is fully determinable and realizable, and the collectability is reasonably assured.
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.
The Company adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”). Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of Section 740-10-25.
Substantially all potential benefits from the Company’s net operating loss carryforwards were lost because of a change in company’s majority ownership that occurred during the fourth quarter of 2013.
Loss Per Common Share
Basic loss per common share is calculated by dividing net earnings by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is calculated similarly but includes potential dilution from the exercise of stock options, stock awards and other convertible instruments, except when the effect of such potential dilution would be anti-dilutive. There were no options or share grants outstanding as of December 31, 2013.
Commitments and Contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
Recently Issued Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 3 -
GOING CONCERN
The accompanying financial statements have been prepared on a going concern basis which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. At December 31, 2013, the Company had an accumulated deficit of $165,452, a working capital deficiency of $56,452 and no source of debt or equity financing. It has acquired the right to manufacture and sell nutraceutical products but cannot provide assurances about the likelihood or timing of developing profitability from this new business endeavor. These factors raise substantial doubt about the Company’s ability to continue as a going concern which is dependent upon the Company’s ability to achieve profitable operations or obtain adequate financing. The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.
NOTE 4 - STOCKHOLDERS’ DEFICIT
The Company was incorporated on March 19, 2007 at which time it issued 9,230,000 common shares of the Company to its founder and president who advised it that it will continue to write all of the pension plans for his clients served by Actuarial Ideas, Inc. The shares were recorded to reflect the $.001 par value and paid-in capital was recorded as a negative amount ($9,230). In other words, no net value was assigned to these shares.
The transactions involving shares of common stock in 2013 were:
·
Issuance of 30,000,000 newly-issued shares of common stock for the exclusive right to manufacture and sell the natural nutraceutical supplements in exchange for.
·
Issued 42,000,000 newly-issued shares of common stock relating to the full conversion of a Convertible Note that had been issued in December 2009.
·
Issued 16,500,000 newly-issued shares of our common stock for services, including 6,000,000 to officers.
·
Mr. Cohen returned 3,000,000 shares of our common stock to our treasury in exchange for the actuarial business that had been discontinued.
At December 31, 2013, there were 95,500,000 shares of common stock issued and outstanding.
In 2013, the Company also issued 1,000,000 shares of preferred stock for services to an individual who subsequently became an officer and director.
Stock Option Plan
Pursuant to a March 27, 2007 Board of Directors approval and subsequent stockholder approval, the Company adopted its 2007 Non-Statutory Stock Option Plan (the “Plan”) whereby it reserved for issuance up to 1,500,000 shares of its common stock. The purpose of the Plan is to provide directors, officers and employees of, consultants, attorneys and advisors to the Company with additional incentives by increasing their ownership interest in the Company. Directors, officers and other employees of the Company are eligible to participate in the Plan. Options in the form of Non-Statutory Stock Options (“NSO”) may also be granted to directors who are not employed by the Company and consultants, attorneys and advisors to the Company providing valuable services to the Company. In addition, individuals who have agreed to become an employee of, director of or an attorney, consultant or advisor to the Company and/or its subsidiaries are eligible for option grants, conditional in each case on actual employment, directorship or attorney, advisor and/or consultant status. The Plan provides for the issuance of NSO’s only, which are not intended to qualify as “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code, as amended.
The Board of Directors of the Company or a Compensation Committee (once established) will administer the Plan with the discretion generally to determine the terms of any option grant, including the number of option shares, exercise price, term, vesting schedule and the post-termination exercise period. Notwithstanding this discretion (i) the term of any option may not exceed 10 years and (ii) an option will terminate as follows: (a) if such termination is on account of termination of employment for any reason other than death, without cause, such options shall terminate one year thereafter; (b) if such termination is on account of death, such options shall terminate 15 months thereafter; and (c) if such termination is for cause (as determined by the Board of Directors and/or Compensation Committee), such options shall terminate immediately. Unless otherwise determined by the Board of Directors or Compensation Committee, the exercise price per share of common stock subject to an option shall be equal to no less than 10% of the fair market value of the common stock on the date such option is granted. No NSO shall be assignable or otherwise transferable except by will or the laws of descent and distribution or except as permitted in accordance with SEC Release No.33-7646 as effective April 7, 1999.
The Plan may be amended, altered, suspended, discontinued or terminated by the Board of Directors without further stockholder approval, unless such approval is required by law or regulation or under the rules of the stock exchange or automated quotation system on which the common stock is then listed or quoted. Thus, stockholder approval will not necessarily be required for amendments which might increase the cost of the Plan or broaden eligibility except that no amendment or alteration to the Plan shall be made without the approval of stockholders which would (a) increase the total number of shares reserved for the purposes of the Plan or decrease the NSO price (except as provided in paragraph 9 of the Plan) or change the classes of persons eligible to participate in the Plan or (b) extend the NSO period or (c) materially increase the benefits accruing to Plan participants or (d) materially modify Plan participation eligibility requirements or (e) extend the expiration date of the Plan. Unless otherwise indicated the Plan will remain in effect for a period of ten years from the date adopted unless terminated earlier by the board of directors except as to NSOs then outstanding, which shall remain in effect until they have expired or been exercised.
No options have been granted and outstanding under the Plan.
Capital Contribution
In September 2012, the Company received a cash contribution of capital from business associates of its President in the amount of $12,500 which was used to pay accrued obligations.
NOTE 5 - CONVERTIBLE NOTE PAYABLE
The Company incurred $42,000 of legal costs in connection with its decision to become publicly reporting. In December 2009, the Company entered into a convertible note payable with its outside counsel, Gary B. Wolff, to satisfy the obligation. The convertible note was payable on demand, bore interest at 2% per annum, and was convertible into shares of our common stock at a price per share equal to par value. The Note, portions of which were sold by Mr. Wolff to other holders, was fully converted during the fourth quarter of 2013.
NOTE 6 - DISCONTINUED OPERATIONS
Discontinued operations consisted of:
NOTE 7 - SUBSEQUENT EVENTS
The Company has evaluated all events that occurred after the balance sheet date of December 31, 2013 through May 15, 2014, the date when the financial statements were issued. The Management of the Company determined that there were no reportable events that occurred during that subsequent period to be disclosed or recorded.