(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended September 30, 2011
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OR
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
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Delaware
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87-0578125
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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Large accelerated filer ¨
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Accelerated filer ¨
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Non-accelerated filer ¨
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Smaller reporting company þ
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Page
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Part I
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Item 1
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Business
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1
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Item 1A
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Risk Factors
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7
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Item 2
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Properties
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12
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Item 3
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Legal Proceedings
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12
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Item 4
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(Removed and Reserved)
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12
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Part II
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Item 5
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Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
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13
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Item 7
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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15
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Item 8
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Financial Statements and Supplementary Data
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24
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Item 9
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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24
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Item 9A
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Controls and Procedures
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24
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Item 9B
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Other Information
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25
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Part III
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Item 10
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Directors, Executive Officers and Corporate Governance
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25
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Item 11
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Executive Compensation
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28
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Item 12
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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30
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Item 13
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Certain Relationships and Related Transactions, and Director Independence
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31
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Item 14
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Principal Accounting Fees and Services
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33
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Part IV
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Item 15
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Exhibits, Financial Statement Schedules
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34
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Signatures
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36
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·
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BodyTel Europe GmbH – uses glucose meter to transmit glucose information via cell phone to BodyTel’s database, where users can log on to view results
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·
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CardioNet, Inc. – specializing in monitoring the heart for detection of arrhythmia, utilizing a monitoring center and two way communication with patient’s physician
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·
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LifeWatch, Inc. and its subsidiary, CardGuard Scientific Survival, Ltd. – monitors heartbeat data for arrhythmia detection and transmits data through the patients mobile phone to LifeWatch’s Monitoring center
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·
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Diabetech LP – monitors glucose for diabetic patients, and sends text or e-mail to patient and doctors
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·
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GE Healthcare’s Living Independently – uses motion detectors in the home to monitor a seniors movements in order to detect patterns and inform caregivers when there may be an emergency, also monitors medication and sends alerts
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·
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GrandCare Systems LLC – monitors motion in the home through motion detectors and other sensors to monitor well being of seniors, blood pressure cuff, glucometer and weight scale to monitor health
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·
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HealthPia USA – glucose meter that attaches to certain mobile phones, results uploaded and sent to caregivers via wireless network
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·
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Philips Remote Cardiac Services/Raytel Imaging Network – records up to 30-days worth of heart data and transmits via Internet connectivity, not yet wireless
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·
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Life Alert Emergency Response, Inc. – offers a pendant/home communications device.
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·
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Philips Lifeline – is the largest provider in the industry with over 750,000 subscribers. Philips Lifeline offers a pendant device/home communications station. It also sends out messages to family members or caregivers when the monitoring center receives an alarm.
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·
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LifeStation, Inc. – offers a wristband, belt clip, pendant devices / home communications station.
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·
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Rescue Alert – offers a pendant/home communications station and claims to have the best panic button range of 600 feet to the home communication device. Its monitoring center is staffed with certified EMD advisors.
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·
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MobileHelp – offers a pendant/home communications station as well as a mobile GPS device.
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·
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GreatCall – Made famous by the JitterBug brand, offers the emergency 5 star mobile device.
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Patent or
Application No.
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Country
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Issue/Filing Date
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Title of Patent
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11/486,989
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United States
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Pending/
7/14/2006
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Remote Tracking Device and System and Method for Two-Way Voice Communication Between Device and a Monitoring Center
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11/486,991
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United States
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Pending/
7/14/2006
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Remote Tracking System and Device with Variable Sampling
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11/830,398
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United States
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Pending/
7/30/2007
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Methods for Establishing Emergency Communications Between a Communications Device and a Response Center
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12/614,242
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United States
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Pending/
11/6/2009
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Systems and Devices for Emergency Tracking and Health Monitoring
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Patent or
Application No.
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Country
|
Issue Date
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Title of Patent
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6,044,257
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United States
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March 28, 2000
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Panic Button Phone
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6,636,732
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United States
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October 21, 2003
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Emergency Phone with Single Button Activation
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6,226,510
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United States
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May 1, 2001
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Emergency Phone for Automatically Summoning Multiple Emergency Response Services
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7,092,695
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United States
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August 15, 2006
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Emergency Phone with Alternate Number Calling Capability
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7,251,471
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United States
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July 31, 2007
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Emergency Phone with Single Button Activation
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Patent or Application No.
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Country
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Issue Date
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Title of Patent
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10/588.833
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United States
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Pending 08/09/06
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Nanostructures Containing Metal-Semiconductor Compounds
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PCT/US2007/008540
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International
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Pending 04/06/07
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Nanoscale Wires Methods and Devices
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PCT/US2007/024222
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International
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Pending 11/20/06
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Millimeter-Long Nanowires
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PCT/US2007/021602
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International
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Pending 10/10/07
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Liquid Films Containing Nanostructured Materials
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·
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“Boiler room” practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons
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·
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Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers, and
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·
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The 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.
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•
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Market conditions or trends in our industry or the economy as a whole and, in particular, in the retail sales environment;
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•
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Timing of promotional events;
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•
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Changes in key personnel;
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•
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Entry into new markets;
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•
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Announcements by us or our competitors of new product offerings or significant acquisitions;
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•
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Actions by competitors;
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•
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The level of expenses associated with new product development and marketing;
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•
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Changes in operating performance and stock market valuations of competitors;
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•
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The public’s response to press releases or other public announcements by us or third parties, including our filings with the SEC;
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•
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The financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;
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•
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Changes in financial estimates by any securities analysts who follow our common stock, our failure to meet these estimates or failure of those analysts to initiate or maintain coverage of our common stock;
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•
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Ratings downgrades by any securities analysts who follow our common stock;
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•
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The development and sustainability of an active trading market for our common stock;
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•
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Future sales of our common stock by our officers, directors and significant stockholders;
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•
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Other events or factors, including those resulting from war, acts of terrorism, natural disasters or responses to these events; and
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•
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Changes in accounting principles.
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·
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Establish advance notice requirements for nominations for elections to our Board of Directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.
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Fiscal Year
Ended September 30, 2011
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High
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Low
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||||||
First Quarter
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$
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1.48
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$
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0.80
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||||
Second Quarter
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$
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1.14
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$
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0.49
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||||
Third Quarter
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$
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0.95
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$
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0.36
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Fourth Quarter
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$
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0.68
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$
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0.47
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Plan Category(1)
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Number of
securities to
be issued upon
exercise
of outstanding
options,
warrants, and
rights
(#)
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Weighted-
average
exercise price of
outstanding
options,
warrants,
and right
($)
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Number of
securities
remaining
available for
future issuance
under
equity
compensation
plans (excluding
securities
reflected in
the first column)
(#)
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|||||||
Equity compensation plans approved by security holders
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0 | $ | 0 | 0 | ||||||
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||||||||||
Equity compensation plans not approved by security holders
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7,322,000
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$
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0.41
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0
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||||||
Totals
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7,322,000
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(1) |
$
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0.41
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0
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(1)
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Includes 320,000 shares of common stock issuable upon exercise of outstanding warrants granted to directors and 7,002,000 shares of common stock issuable upon exercise of outstanding warrants granted under a personal compensation plan to our chief executive officer.
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·
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3,484,000 shares were issued to accredited investors in a private placement for cash with net proceeds of $2,101,700.
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·
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1,200,000 shares were issued to accredited investors on the conversion of shares of Series A preferred stock.
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·
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720,000 shares were issued to accredited investors on the conversion of Series B preferred stock.
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·
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2,750,000 shares were issued for current and future consulting services valued at $2,912,500.
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·
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70,000 shares were issued for services performed in the sales and marketing area for a value of $76,100.
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·
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51,000 shares were issued for services performed in the research and development areas valued at $69,870.
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·
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777,750 shares were issued to employees, officers, and directors for services performed for a value of $991,303.
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·
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77,500 shares were issued in connection with origination fees for loans to the Company for a value of 73,958.
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·
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44,714 shares were issued in connection with preferred stock dividends hold by investor valued at $45,161.
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·
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2,528,000 shares were issued upon the exercise of options for cash proceeds of $632,000.
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·
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1,568,000 shares were issued upon the exercise of options/warrants for accrued and current services valued at $560,000.
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·
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1,962,500 shares to accredited investors on June 7th, 2011 for cash proceeds of $456,500;
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·
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70,000 shares to accredited investors on August 19th, 2011 for cash proceeds of $28,000;
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·
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4,770,000 shares on October 27, 2010, March 7, 2011, April 7, 2011, May 18, 2011, and September 1, 2011 respectively, under warrants exercised by an officer at $0.25 per share for cash proceeds of $1,192,500;
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·
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12,000 shares on March 31, 2011 upon the cashless exercise of warrants at $1.25 per share for accrued director fees of $15,000, and 150,000 shares on June 22, 2011 for accrued director fees of $75,000;
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·
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225,000 shares on May 6, 2011 as a loan origination fee to an unrelated party with value of $93,103;
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·
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300,000 shares on September 30, 2011 upon the cashless exercise of warrants at $0.25 per share for accrued service fee through a third party with marketing and product branding services valued at $75,000;
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·
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652,500 shares issued under several service agreements with third parties in connection with marketing and product branding services valued at $580,650;
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·
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950,000 shares on June 22, 2011 to employees for services valued at $437,000;
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·
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4,000,000 shares were issued on June 22, 2011 under a new employment contract to our Chief Executive Officer for services to be rendered during the term of the agreement from October 1, 2010 through September 2014. The value of these shares of common stock on the date of grant totaled $1,840,000.
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·
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The Company, may, in its sole discretion, make draw downs against the Commitment Amount (each a “Draw Down”) during the period commencing with the effective date of the Agreement (August 10, 2011) through September 30, 2014, which Draw Downs the Investors are obligated to accept, subject to the terms and conditions of the Agreement.
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·
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The first $5 million of financing available under the Commitment Amount was to be paid to the Company on or before November 15, 2011. Thereafter, future Draw Downs will be as initiated by the Company under the Agreement, subject to the accomplishment of certain milestones related to the business activity of the Company. The Company received $900,000 prior to the execution of the Agreement, which was credited against the first financing under the Equity Line. No shares of Common Stock have been issued in connection with this initial subscription amount. Sapainda did not provide the balance of the first $5 million on or before November 15, 2011 and has not done so as of the date hereof.
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·
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The delivery of a Draw Down Notice by the Company triggers a pricing period (“Pricing Period”) of 60 consecutive trading days. The Draw Down Notice indicates the dollar amount of the Draw Down (the “Investment Amount”) the Company wishes to exercise and the minimum price per share that it will accept for the securities to be sold under the notice (the “Safety Net Price”). The Company is not required to sell any securities under the Draw Down Notice at a price below the Safety Net Price. Under no circumstances will the Company be required to sell any securities under the Equity Line at a price that is less than $0.50 per share.
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·
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Only one Draw Down is allowed in each Draw Down Pricing Period. Subject to the Safety Net Price indicated in the Draw Down Notice and the minimum price of $0.50 per share, the number of shares of Common Stock purchased by Investors with respect to each Draw Down is to be determined by dividing the Draw Down Amount by the applicable Subscription Price (equal to 70% of the volume weighted average price reported by Bloomberg during the Pricing Period.
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·
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Funding under each Draw Down Notice is to occur on the first trading day following the 60-trading day Pricing Period covered by the notice.
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·
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The shares of Common Stock issuable pursuant to the Equity Line will be issued pursuant to an exemption from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) and or other rules and regulations promulgated thereunder.
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·
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Each share of Series C Preferred stock is convertible into 10 shares of common stock.
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·
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The Series C preferred stock is not entitled to dividends.
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·
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The Series C preferred stock is not entitled to vote.
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·
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The Series C preferred stock is entitled to a liquidation preference of $1.00 per share.
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·
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The Series C preferred stock can only convert when our quarterly revenue reaches $1,250,000.
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·
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Each share of Series D Preferred stock is convertible into 10 shares of common stock.
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·
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The Series D preferred stock is not entitled to dividends.
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·
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The Series D preferred stock is entitled to vote.
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·
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The Series D preferred stock is entitled to a liquidation preference of $1.00 per share.
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•
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Decrease in amortization expense related to the completion of the acquisition of HG Partners, Inc. of approximately $654,000 during fiscal year 2010;
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•
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Decrease in noncash bonus expense of approximately $347,000, which was used for exercising outstanding stock purchase warrants during the prior fiscal year;
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•
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Decrease in consulting expense of approximately $813,000 compared to the prior fiscal year, all of which was due to noncash expense related to accelerated vesting of warrants to officers and Board of Directors during fiscal year 2010; and
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•
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Decrease in investment relations expense of approximately $766,000, all of which was non-cash expense, paid with issuance of common stock.
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•
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Increase in advertising and marketing expense of approximately $375,000 due to the cost of advertising and marketing of the ActiveOne+™ device;
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•
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Increase in amortization expense related to the completion of the acquisition of HG Partners, Inc. of approximately $654,000;
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•
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Increase in bonus expense of approximately $355,000, $350,000 of which was paid by the cashless exercise of outstanding stock purchase warrants;
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•
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Increase in consulting expense of approximately $3,901,000, all of which was non-cash, paid with issuance of common stock and warrants, and the amortization of warrant expense. This includes the accelerated vesting of warrants to officers and board of directors;
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•
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Increase in board fees of approximately $20,000;
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•
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Increase in insurance expense of approximately $43,000;
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•
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Increase in investment relations expense of approximately $1,015,000, all of which was non-cash expense, paid with issuance of common stock;
|
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•
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Increase in payroll of approximately $698,000 for services paid by issuance of common stock and warrants to employees;
|
|
•
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Increase in telephone expenses of $25,000 due to business expansion; and
|
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•
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Increase in travel expenses of $140,000 due to development and marketing of ActiveOne+™ device.
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·
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It requires assumptions to be made that were uncertain at the time the estimate was made, and
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·
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Changes in the estimate or different estimates that could have been selected could have a material impact on its consolidated results of operations or financial condition.
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·
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The price to the buyer is fixed or determinable at the date of sale.
|
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·
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The buyer has paid or the buyer is obligated to pay within 30 days, and the obligation is not contingent on resale of the product.
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·
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The buyer’s obligation would not be changed in the event of theft or physical destruction or damage of the product.
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·
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The buyer acquiring the product for resale has economic substance apart from that provided by the Company.
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·
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We do not have significant obligations for future performance to directly bring about resale of the product by the buyer.
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·
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The amount of future returns can be reasonably estimated and they are negligible.
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·
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The price to the buyer is fixed or determinable at the date of sale.
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·
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The buyer has paid or the buyer is obligated to pay within 30 days, and the obligation is not contingent on resale of the product.
|
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·
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The buyer’s obligation would not be changed in the event of theft or physical destruction or damage of the product.
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·
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The buyer acquiring the product for resale has economic substance apart from that provided by the Company.
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·
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We do not have significant obligations for future performance to directly bring about resale of the product by the buyer.
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·
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The amount of future returns can be reasonably estimated and they are negligible.
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·
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Customers may return diagnostic equipment within 30 days of the purchase date. Customers may return the medical diagnostic stains within 30 days of the purchase date provided that the stain’s remaining life is at least eight months. Customers must obtain prior authorization for a product return.
|
(i)
|
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
|
(ii)
|
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
|
(iii)
|
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.
|
·
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Ineffective controls over period end financial disclosure and reporting processes.
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·
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Ineffective controls over communication of material transactions between management and accounting personnel.
|
Name
|
Age
|
Position
|
||
James J. Dalton
|
69 |
Chairman (Director) and Chief Executive Officer
|
||
James G. Carter
|
72 |
Director
|
||
William K. Martin
|
68 |
Director
|
||
Jack J. Johnson
|
69 |
Director
|
||
Robert J. Welgos
|
73 |
Director
|
||
Michael G. Acton
|
48 |
Chief Financial Officer, Secretary-Treasurer
|
Name
(a)
|
Fees Earned or Paid in Cash
($)
(b)
|
Stock Awards
($)
(c)
|
Option Awards
($)
(d)
|
Non-Equity Incentive Plan Compensation
($)
(e)
|
Change in Pension Value and Nonqualified Deferred Compensation Earnings
($)
(f)
|
All Other Compensation
($)
(g)
|
Total
($)
(h)
|
||||||||||||||||||||
James J. Dalton (1)
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||||
James G. Carter
|
$
|
30,000
|
--
|
--
|
--
|
--
|
--
|
$
|
30,000
|
||||||||||||||||||
William K. Martin
|
$
|
30,000
|
--
|
--
|
--
|
--
|
--
|
$
|
30,000
|
||||||||||||||||||
Robert J. Welgos
|
$
|
30,000
|
--
|
--
|
--
|
--
|
--
|
$
|
30,000
|
||||||||||||||||||
Jack Johnson
|
$
|
30,000
|
--
|
--
|
--
|
--
|
--
|
$
|
30,000
|
(1)
|
Mr. Dalton is Chairman of the Board of Directors. He previously served as our Chief Executive Officer, until October 2011. Mr. Dalton received 4,000,000 restricted shares of our common stock in lieu of cash compensation and warrants to purchase 3,000,000 shares of our common stock for services provided as our Chief Executive Officer. Mr. Dalton did not receive additional compensation for his service on the Board of Directors. His compensation for the year ended September 30, 2011 is disclosed in the Summary Compensation Table on page 28 below.
|
·
|
4,000,000 restricted shares of common stock were granted to Mr. Dalton at a price of $0.46 per share, which vested immediately; and
|
·
|
Warrants for the purchase of 3,000,000 shares of common stock at a price of $0.50 per share.
|
Name and principal
position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
awards
($)
|
Option
awards
($)
|
Non-equity
incentive plan
compensation
($)
|
Nonqualified
deferred
compensation
earnings
($)
|
All other
compensation
($)(1)
|
Total
($)
|
||||||||||||||||||||||||
(a)
|
(b)
|
(c)
|
(d)
|
(e)(3)
|
(f)(4)
|
(g)
|
(h)
|
(i)
|
(j)
|
||||||||||||||||||||||||
James J. Dalton,(2)
|
2011
|
$ | - | $ | - | $ | 1,840,000 | $ | 791,434 | $ | - | $ | - | $ | 7,325 | $ | 2,638,759 | ||||||||||||||||
Principal Executive
|
2010
|
$ | 50,000 | $ | - | $ | 540,000 | $ | 2,323,464 | $ | - | $ | - | $ | 23,933 | $ | 2,937,397 | ||||||||||||||||
Officer
|
2009
|
$ | - | $ | - | $ | 190,000 | $ | 571,540 | $ | - | $ | - | $ | 6,717 | $ | 768,257 | ||||||||||||||||
Michael G. Acton,
|
2011
|
$ | 78,895 | $ | - | $ | 411,426 | $ | - | $ | - | $ | - | $ | 29,258 | $ | 519,579 | ||||||||||||||||
Principal Financial
|
2010
|
$ | 60,000 | $ | 300 | $ | 326,628 | $ | - | $ | - | $ | - | $ | 20,744 | $ | 407,672 | ||||||||||||||||
Officer
|
2009
|
$ | 72,309 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 4,944 | $ | 77,253 |
(1)
|
Column (i) includes long-term care insurance and other personal benefits. The amounts included in that column, representing premiums paid by us for the applicable insurance policies, include the following:
|
||||||||||||||
Term Life
|
Health
|
Dental
|
Vision
|
|||||||||||||
Name
|
Insurance
|
Insurance
|
Insurance
|
Insurance
|
||||||||||||
James J. Dalton
|
$ | 103 | $ | 6,300 | $ | 670 | $ | 252 | ||||||||
Michael G. Acton
|
$ | 4,727 | $ | 23,194 | $ | 1,085 | $ | 252 |
(2)
|
All amounts paid under the management agreement described above. All amounts except those reported in column (c) and column (i) are non-cash amounts and represent stock or option grants.
|
|
|
(3)
|
Amounts in this column represent non-cash compensation expense of stock grants based on the market value of the stock on the grant date. The aggregate grant date fair value of stock awards to Mr. Dalton in the three-year period was $2,570,000. During the fiscal year ended September 30, 2010, we granted Mr. Acton $222,750 of the restricted stock awards vest pursuant to certain performance conditions. As of September 30, 2011, none of the performance conditions were met. During the fiscal year ended September 30, 2011, we recognized $66,426 of expense associated with the restricted stock grants. During the fiscal year ended September 30, 2011, the
aggregate grant date fair value of stock awards issued to Mr. Acton was $345,000. The total stock base compensation we recognized for Mr. Acton during the three-year period is $738,054.
|
(4)
|
Amounts in this column represent non-cash compensation expense based on the fair value of options granted, calculated using the Black-Scholes option-pricing model. During the period, the options granted to Mr. Dalton have an aggregate grant date fair value of $791,434 using the following assumptions: exercise price of $0.50; risk-free interest rate of 0.68%; expected life of two and a half years; expected dividend of 0%; and a volatility factor of 104%.
|
Option Awards
|
Stock Awards
|
|||||||||||||||||||||||||||||||||||
Name
(a)
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
(b)
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
(c)
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
(d)
|
Option
Exercise
Price
($)
(e)
|
Option
Expira-tion
Date
(f)
|
Number
of Shares
or Units
of Stock
That
Have Not
Vested
(#)
(g)
|
Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested
($)
(h)
|
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units, or
Other
Rights That
Have Not
Vested
(#)
(i)
|
Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units,
or Other
Rights That
Have Not
Vested
($)
(j)
|
|||||||||||||||||||||||||||
James J. Dalton,
President and Chief
Executive Officer
|
3,000,000 | 0 | 0 | $ | 0.50 |
6/21/2016
|
0 | $ | 0 | 0 | $ | 0 | ||||||||||||||||||||||||
4,002,000 | 0 | 0 | $ | 0.25 |
5/11/2014
|
0 | $ | 0 | 0 | $ | 0 | |||||||||||||||||||||||||
Michael G. Acton, Chief Financial Officer
|
0 | 0 | 0 | $ | 0 | 0 | 0 | $ | 0 | 0 | $ |
·
|
each person or group who is known by us to own beneficially more than 5% of our outstanding shares of common stock;
|
|
·
|
each of our Named Executive Officers;
|
|
·
|
each of our directors; and
|
|
·
|
all of the executive officers and directors as a group.
|
5% Stockholders:
Title of Class
|
Name and address of Beneficial Owner
|
Amount and Nature
Of Beneficial
Ownership
|
Percent of Class
|
||||||
Common
|
Harborview Master Fund LP (1)
850 Third Avenue, Suite 1801
New York, NY 10022
|
3,041,568 | 7.67 | % | |||||
Common
|
Gemini Master Fund LTD (2)
135 Liverpool Drive, Suite C
Cardiff, CA 92007
|
2,340,820 | 5.93 | % | |||||
Common
|
Pacific Capital S.ar.l.(3)
28 Boulevard d’Avranches
L-1160 Luxembourg
|
2,000,000 | 5.19 | % |
Executive Officers and Directors:
|
|||||||||
Title of Class
|
Name of Beneficial Owner
|
Amount and
Nature of Beneficial
Ownership
|
Percent of Class
|
||||||
Common
|
James J. Dalton(4)
|
14,756,417 | 30.01 | % | |||||
Common
|
David S. Boone(5)
|
1,111,110 | 2.80 | % | |||||
Common
|
James G. Carter(6)
|
307,932 | * | ||||||
Common
|
William K. Martin(7)
|
764,178 | 1.98 | % | |||||
Common
|
Robert J. Welgos(8)
|
272,593 | * | ||||||
Common
|
Jack Johnson(9)
|
140,000 | * | ||||||
Common
|
Michael G. Acton(10)
|
1,215,310 | 3.15 | % | |||||
All executive officers and directors as a group (6 persons)(11)
|
18,567,540 | 39.80 | % |
(1)
|
Includes 1,972,261 shares and 1,069,307 warrants owned of record by Harborview Master Fund LP.
|
(2)
|
Includes 1,409,857 shares and 930,963 warrants owned of record by Gemini Master Fund LTD.
|
(3)
|
Includes 2,000,000 shares owned of record by Pacific Capital S.a.r.l.
|
(4)
|
Mr. Dalton is a member of our Board of Directors and until October 17, 2011 served as our CEO. This amount includes 4,154,417 shares and 7,002,000 warrants owned of record by Mr. Dalton.
|
(5)
|
Mr. Boone became our Chief Executive Officer on October 17, 2011. This amount includes 1,111,110 warrants vested among the 3,000,000 warrants granted according to the employment agreement.
|
(6)
|
Mr. Carter is a director. Includes 230,932 shares and 77,000 warrants owned of record by Mr. Carter.
|
(7)
|
Mr. Martin is a director. Includes 93,000 shares and 77,000 warrants owned of record by Mr. Martin. Also, includes 594,178 shares held in the name of Zenith Holding, LTD, an entity controlled by Mr. Martin.
|
(8)
|
Mr. Welgos is a director. Includes 171,593 shares and 101,000 warrants owned of record by Mr. Welgos.
|
(9)
|
Mr. Johnson is a director. Includes 75,000 shares and 65,000 warrants owned of record by Mr. Johnson.
|
(10)
|
Mr. Acton is our Chief Financial Officer and Secretary-Treasurer.
|
(11)
|
Duplicate entries eliminated.
|
·
|
selecting and hiring our independent registered public accounting firm, and approving the audit and non-audit services to be performed by and the fees to be paid to our independent registered public accounting firm;
|
·
|
evaluating the qualifications, performance and independence of our independent auditors;
|
·
|
monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters;
|
·
|
reviewing the adequacy and effectiveness of our internal control policies and procedures;
|
·
|
discussing the scope and results of the audit with the independent registered public accounting firm and reviewing with management and the independent registered public accounting firm our interim and year-end operating results; and
|
·
|
preparing the audit committee report required by the SEC, to be included in our annual proxy statement.
|
·
|
reviewing and approving compensation of our executive officers including annual base salary, annual incentive bonuses, specific goals, equity compensation, employment agreements, severance and change in control arrangements, and any other benefits, compensations or arrangements;
|
·
|
reviewing succession planning for our executive officers;
|
·
|
reviewing and recommending compensation goals, bonus and stock compensation criteria for our employees;
|
·
|
preparing the compensation committee report required by the SEC to be included in our annual proxy statement; and
|
·
|
administering, reviewing and making recommendations with respect to our equity compensation plans.
|
Robert J. Welgos, Chair
|
|
William K. Martin
|
Report of Independent Registered Public Accounting Firm
|
Consolidated Balance Sheets
|
Consolidated Statements of Earnings
|
Consolidated Statements of Stockholders’ Equity and Comprehensive Income
|
Consolidated Statements of Cash Flows
|
Notes to the Consolidated Financial Statements
|
|
2.
|
Financial Statement Schedules. [Included in the Consolidated Financial Statements or Notes thereto.]
|
|
3.
|
Exhibits. The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the Commission:
|
Title of Document
|
||
(10)(x)
|
Office Lease Agreement between the Company and Reef Parkway, LLC (filed previously as exhibit to report on Form 10-Q, filed February 10, 2011).*
|
|
(10)(xi)
|
Lease Addendum between the Company and Reef Parkway, LLC (filed previously as exhibit to report on Form 10-Q, filed February 10, 2011).*
|
|
(10)(xii)
|
Office Lease Agreement between the Company and Phoenix 2006 Partners, LLC (filed previously as exhibit to report on Form 10-Q, filed February 10, 2011).*
|
|
(10)(xiii)
|
Employment Contract with James Dalton, Chief Executive Officer dated June 22, 2011.*
|
|
(10)(xiv)
|
Common Stock Purchase Warrant Agreement with James Dalton dated June 22, 2011.*
|
|
(10)(xv)
|
Employment Agreement with David S. Boone dated October 17, 2011*
|
|
(11)
|
Computation of Statement of Earnings (included in financial statements filed herewith)*
|
|
(31)(i)
|
Certifications of Chief Executive (Principal) Executive Officer under Rule 13a-14(a)/15d-14(a)*
|
|
(31)(ii)
|
Certifications of Chief Financial (Principal Financial and Accounting) Officer under Rule 13a-14(a)/15d-14(a)*
|
|
31.1 |
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31.2 |
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32.1 | Certification of Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C.Section 1350 | |
101.Ins | XBRL Instance | |
101.Sch | XBRL Schema | |
101.Cal | XBRL Calculation | |
101.Def | XBRL Definition | |
101.Lab | XBRL Label | |
101.Pre | XBRL Presentation |
Page
|
|
Report of Independent Registered Public Accounting Firm
|
F-3 |
Balance Sheets as of September 30, 2011 and 2010
|
F-4
|
Statements of Operations for the Years Ended September 30, 2011 and 2010
|
F-6
|
Statements of Stockholders’ Equity/ (Deficit) for the Years Ended September 30, 2010 and 2011
|
F-7
|
Statements of Cash Flows for the Years Ended September 30, 2011 and 2010
|
F-8
|
Notes to Financial Statements
|
F-10
|
HANSEN, BARNETT & MAXWELL, P.C.
|
September 30, 2011
|
September 30, 2010
|
|||||||
Assets
|
||||||||
Current assets:
|
||||||||
Cash
|
$ | 178,131 | $ | 1,713,923 | ||||
Accounts receivable, net of allowance for doubtful accounts of $6,820 and $3,000, respectively
|
103,044 | 106,142 | ||||||
Inventories, net of inventory valuation of $4,404 and $4,326, respectively
|
116,010 | 41,516 | ||||||
Prepaid expenses and other assets
|
2,217 | 243,882 | ||||||
Total current assets
|
399,402 | 2,105,463 | ||||||
Property and equipment, net of accumulated depreciation of $464,276 and $427,827, respectively
|
232,182 | 88,455 | ||||||
Deposits
|
30,831 | 128,883 | ||||||
Domain name, net of amortization of $1,430 and $715 respectively
|
12,870 | 13,585 | ||||||
Leased equipment, net of amortization of $54,549 and $21,921, respectively
|
112,955 | 96,544 | ||||||
License agreement, net of amortization of $81,310 and $47,664, respectively
|
218,690 | 252,336 | ||||||
Investment, net of impairment of $50,000 and $0, respectively
|
- | 50,000 | ||||||
Total assets
|
$ | 1,006,930 | $ | 2,735,266 |
September 30, 2011
|
September 30, 2010
|
|||||||
Liabilities and Stockholders’ Equity / (Deficit)
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$ | 452,034 | $ | 639,568 | ||||
Accrued expenses
|
494,919 | 236,219 | ||||||
Deferred revenue
|
1,365 | 25,921 | ||||||
Related party notes payable
|
- | 25,000 | ||||||
Note payable, net of discount of $93,103 and $6,164, respectively
|
300,000 | 23,836 | ||||||
Accrued payable on license agreement
|
300,000 | 300,000 | ||||||
Total current liabilities
|
1,548,318 | 1,250,544 | ||||||
Total liabilities
|
1,548,318 | 1,250,544 | ||||||
Stockholders’ equity / (deficit)
|
||||||||
Preferred stock; $.00001 par value, 10,000,000 shares authorized; 0 shares issued and outstanding
|
- | - | ||||||
Common stock, $.00001 par value, 50,000,000 shares authorized; 38,568,160 and 25,039,160 shares issued and outstanding, respectively
|
386 | 251 | ||||||
Additional paid in capital
|
24,394,501 | 18,522,033 | ||||||
Accumulated deficit
|
(24,936,275 | ) | (17,037,562 | ) | ||||
Total stockholders’ equity / (deficit)
|
(541,388 | ) | 1,484,722 | |||||
Total liabilities and stockholders’ equity / (deficit)
|
$ | 1,006,930 | $ | 2,735,266 |
2011
|
2010
|
|||||||
Revenues:
|
||||||||
Care Services
|
$ | 333,902 | $ | 74,258 | ||||
Reagents
|
437,489 | 474,066 | ||||||
Total revenues
|
771,391 | 548,324 | ||||||
Cost of Revenue
|
||||||||
Care Services
|
685,729 | 305,305 | ||||||
Reagents
|
369,392 | 364,804 | ||||||
Total cost of revenues
|
1,055,121 | 670,109 | ||||||
Gross margin
|
(283,730 | ) | (121,785 | ) | ||||
Operating expenses
|
||||||||
Research and development (including $15,300 and $69,870, respectively, of paid in stock or stock options/warrants)
|
321,245 | 458,047 | ||||||
Selling, general and administrative (including $4,232,450 and $6,648,114, respectively, of compensation expense paid in stock or as a result of amortization of stock options/warrants)
|
6,958,693 | 9,327,156 | ||||||
Loss from operations
|
(7,563,668 | ) | (9,906,988 | ) | ||||
Other income (expenses):
|
||||||||
Gain (loss) on derivative liability
|
- | 443,735 | ||||||
Warrants refinancing expense
|
- | (754,385 | ) | |||||
Interest expense (including $306,015 and $1,289,074, respectively, of non cash expenses)
|
(334,706 | ) | (1,420,389 | ) | ||||
Loss on disposal of equipment
|
(6,193 | ) | (425 | ) | ||||
Interest income
|
782 | - | ||||||
Impairment of Investment
|
(50,000 | ) | - | |||||
Gain on accounts payable forgiveness
|
55,072 | (343 | ) | |||||
Net loss
|
$ | (7,898,713 | ) | $ | (11,638,795 | ) | ||
Net loss per common share – basic and diluted
|
$ | (0.27 | ) | $ | (0.81 | ) | ||
Weighted average shares – basic and diluted
|
28,974,350 | 14,296,000 |
Common Stock
|
Additional
|
Accumulated
|
||||||||||||||||||
Shares
|
Amount
|
Paid-in Capital
|
Deficit
|
Total
|
||||||||||||||||
Balance at September 30, 2009
|
11,768,196 | $ | 119 | $ | 5,330,651 | $ | (5,398,767 | ) | $ | (67,997 | ) | |||||||||
Issuance of common stock for:
|
||||||||||||||||||||
Cash
|
3,484,000 | 35 | 2,612,965 | - | 2,613,000 | |||||||||||||||
Options/warrants exercised for cash
|
2,528,000 | 25 | 631,975 | - | 632,000 | |||||||||||||||
Services
|
3,648,750 | 35 | 2,935,239 | - | 2,935,274 | |||||||||||||||
Preferred stock dividends
|
44,714 | 1 | 45,161 | - | 45,162 | |||||||||||||||
Connection with loans
|
77,500 | 1 | 60,624 | - | 60,625 | |||||||||||||||
Options/warrants exercised for services
|
1,568,000 | 16 | 559,984 | - | 560,000 | |||||||||||||||
Options
|
- | - | 1,910,902 | - | 1,910,902 | |||||||||||||||
Amortization of deferred financing fees
|
- | - | 50,500 | - | 50,500 | |||||||||||||||
Amortization of warrants issued for services
|
- | - | 3,220,256 | - | 3,220,256 | |||||||||||||||
Conversion feature of preferred stock
|
1,920,000 | 19 | 1,163,776 | - | 1,163,795 | |||||||||||||||
Net loss
|
- | - | - | (11,638,795 | ) | (11,638,795 | ) | |||||||||||||
Balance at September 30, 2010
|
25,039,160 | 251 | 18,522,033 | (17,037,562 | ) | 1,484,722 | ||||||||||||||
Issuance of common stock for:
|
||||||||||||||||||||
Cash
|
2,032,500 | 20 | 812,980 | - | 813,000 | |||||||||||||||
Options/warrants exercised for cash
|
4,770,000 | 48 | 1,192,452 | - | 1,192,500 | |||||||||||||||
Services
|
6,189,500 | 62 | 1,370,988 | - | 1,371,050 | |||||||||||||||
Options/warrants exercised for services
|
312,000 | 3 | 89,997 | - | 90,000 | |||||||||||||||
Connection with loans
|
225,000 | 2 | 93,101 | - | 93,103 | |||||||||||||||
Finance fee
|
- | - | (161,750 | ) | - | (161,750 | ) | |||||||||||||
Options
|
- | - | 39,572 | - | 39,572 | |||||||||||||||
Amortization of warrants issued for services
|
- | - | 663,103 | - | 663,103 | |||||||||||||||
Amortization of stocks issued for services
|
- | - | 1,772,025 | - | 1,772,025 | |||||||||||||||
Net loss
|
- | - | - | (7,898,713 | ) | (7,898,713 | ) | |||||||||||||
Balance at September 30, 2011
|
38,568,160 | $ | 386 | $ | 24,394,501 | $ | (24,936,275 | ) | $ | (541,388 | ) |
2011
|
2010
|
|||||||
Cash flows from operating activities:
|
||||||||
Net loss
|
$ | (7,898,713 | ) | $ | (11,638,795 | ) | ||
Adjustments to reconcile net loss to net cash used
|
||||||||
in operating activities:
|
||||||||
Depreciation and amortization
|
203,708 | 779,172 | ||||||
Stock based compensation expense
|
4,118,178 | 6,561,028 | ||||||
Warrants issued for services
|
39,572 | 42,294 | ||||||
Loss on impairment of investment
|
50,000 | - | ||||||
Amortization of debt discount as interest expense
|
99,265 | 1,243,911 | ||||||
Finance expense on equity issuance
|
206,750 | - | ||||||
Common stock issued for interest
|
- | 45,163 | ||||||
Gain on derivative liability
|
- | (443,735 | ) | |||||
Loss on disposal of property & leased equipment
|
6,193 | 4,482 | ||||||
Warrants refinancing expense
|
- | 754,385 | ||||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
3,098 | (42,673 | ) | |||||
Inventories
|
(74,494 | ) | 7,449 | |||||
Prepaid expenses and other assets
|
339,717 | (170,813 | ) | |||||
Accounts payable
|
(187,534 | ) | 391,016 | |||||
Accrued expenses
|
36,701 | 291,675 | ||||||
Deferred revenue
|
(24,556 | ) | 25,921 | |||||
Net cash used in operating activities
|
(3,082,115 | ) | (2,149,520 | ) | ||||
Cash flows from investing activities:
|
||||||||
Purchase of assets for operations
|
(211,159 | ) | (41,566 | ) | ||||
Purchase of leased equipment
|
(124,520 | ) | (251,037 | ) | ||||
Purchase of investment
|
- | (50,000 | ) | |||||
Purchase of intangibles
|
- | (13,585 | ) | |||||
Net cash used in investing activities
|
(335,679 | ) | (356,188 | ) | ||||
Cash flows from financing activities:
|
||||||||
Proceeds from sale of common stock, net of commissions
|
444,500 | 2,101,700 | ||||||
Proceeds from related-party note payable
|
- | 25,000 | ||||||
Proceeds from note payable and associated stock issuance
|
300,002 | 30,000 | ||||||
Issuance of Series B preferred stock
|
- | 600,000 | ||||||
Payment to related-party note payable
|
(25,000 | ) | - | |||||
Payment to note payable
|
(30,000 | ) | - | |||||
Proceeds from exercise of warrants
|
1,192,500 | 632,000 | ||||||
Net cash provided by financing activities
|
1,882,002 | 3,388,700 | ||||||
Net decrease in cash
|
(1,535,792 | ) | 882,992 | |||||
Cash, beginning of period
|
$ | 1,713,923 | $ | 830,931 | ||||
Cash, end of period
|
$ | 178,131 | $ | 1,713,923 |
2011
|
2010
|
|||||||
Supplemental Cash Flow Information:
|
||||||||
Cash paid for income taxes
|
$ | - | $ | - | ||||
Cash paid for interest
|
$ | 11,684 | $ | 64,565 | ||||
Non-Cash Investing and Financing:
|
||||||||
Conversion of derivative liability
|
$ | - | $ | 2,831,611 | ||||
Exercise of warrants for settlement of accrued board fees
|
$ | 15,000 | $ | 210,000 | ||||
Issuance of stock for settlement of accrued board fees
|
$ | 75,000 | $ | - |
2011
|
2010
|
|||||||
Care Services
|
||||||||
ActiveHome
|
$ | 68,264 | $ | - | ||||
Reagents
|
||||||||
Raw materials
|
$ | 38,433 | $ | 35,127 | ||||
Work in process
|
$ | 7,131 | $ | 3,086 | ||||
Finished goods
|
$ | 6,586 | $ | 7,629 | ||||
Reserve for inventory obsolescence
|
$ | (329 | ) | $ | (251 | ) | ||
Inventory Valuation
|
$ | (4,075 | ) | $ | (4,075 | ) | ||
Total inventory
|
$ | 116,010 | $ | 41,516 |
·
|
The Company’s price to the buyer is fixed or determinable at the date of sale.
|
·
|
The buyer has paid the Company, or the buyer is obligated to pay the Company within 30 days, and the obligation is not contingent on resale of the product.
|
·
|
The buyer’s obligation to the Company would not be changed in the event of theft or physical destruction or damage of the product.
|
·
|
The buyer acquiring the product for resale has economic substance apart from that provided by the Company.
|
·
|
The Company does not have significant obligations for future performance to directly bring about resale of the product by the buyer.
|
·
|
The amount of future returns can be reasonably estimated and they are negligible.
|
● |
The Company’s price to the buyer is fixed or determinable at the date of sale.
|
● |
The buyer has paid the Company, or the buyer is obligated to pay the Company within 30 days, and the obligation is not contingent on resale of the product.
|
● |
The buyer’s obligation to the Company would not be changed in the event of theft or physical destruction or damage of the product.
|
● |
The buyer acquiring the product for resale has economic substance apart from that provided by the Company.
|
● |
The Company does not have significant obligations for future performance to directly bring about resale of the product by the buyer.
|
● |
The amount of future returns can be reasonably estimated and they are negligible.
|
● |
Customers may return diagnostic equipment within 30 days of the purchase date. Customers may return the medical diagnostic stains within 30 days of the purchase date provided that the stain’s remaining life is at least 8 months. Customers must obtain prior authorization for a product return.
|
2011
|
2010
|
|||||||
Equipment
|
$ | 229,229 | $ | 195,499 | ||||
Software
|
25,111 | 20,032 | ||||||
Leasehold improvements
|
402,016 | 274,437 | ||||||
Furniture and fixtures
|
40,102 | 26,314 | ||||||
|
696,458 | 516,282 | ||||||
Accumulated depreciation
|
(464,276 | ) | (427,827 | ) | ||||
Property and equipment, net
of accumulated depreciation
|
$ | 232,182 | $ | 88,455 |
2011
|
2010
|
|||||||
Leased equipment
|
$ | 167,504 | $ | 118,465 | ||||
Less accumulated depreciation
|
(54,549 | ) | (21,921 | ) | ||||
Leased Equipment, net
|
$ | 112,955 | $ | 96,544 |
·
|
2,032,500 shares for cash proceeds of $813,000, net of origination fee of $368,500;
|
·
|
4,770,000 shares for warrants exercised for cash proceeds of $1,192,500;
|
·
|
162,000 shares for accrued director fees of $90,000;
|
·
|
225,000 shares in consideration for loan origination fee with value of $93,103;
|
·
|
1,372,500 shares in consideration for services in connection with marketing and product branding service with value of $918,750;
|
·
|
17,000 shares as payment for research and development services with value of $15,300;
|
·
|
950,000 shares to company employees for services with value of $437,000;
|
·
|
4,000,000 shares under a new employment contract with an officer for services to be rendered through September 2014. The value of these shares of common stock totaled $1,840,000. The Company has been amortizing the associated expense over the remaining period of the employment term. For the year ended September 30, 2011, the Company has recognized $460,000 of the related expense.
|
Vesting
|
% of
|
Price on
|
||||||||||||||
Criteria
|
Shares
|
total shares
|
Grant Date
|
Value
|
||||||||||||
1M Rev
|
61,000 | 10 | % | $ | 1.35 | $ | 82,350 | |||||||||
5M Rev
|
96,000 | 15 | % | 1.35 | 129,600 | |||||||||||
10M Rev
|
96,000 | 15 | % | 1.35 | 129,600 | |||||||||||
15M Rev
|
96,000 | 15 | % | 1.35 | 129,600 | |||||||||||
20M Rev
|
96,000 | 15 | % | 1.35 | 129,600 | |||||||||||
25M Rev
|
96,000 | 15 | % | 1.35 | 129,600 | |||||||||||
Profitability
|
96,000 | 15 | % | 1.35 | 129,600 | |||||||||||
Total
|
637,000 | 100 | % | $ | 859,950 |
Options
|
Number of Options and Warrants
|
Weighted-Average Exercise Price
|
||||||
Outstanding as of September 30, 2009
|
14,642,856 | $ | 0.40 | |||||
Granted
|
3,200,000 | 1.00 | ||||||
Exercised
|
(4,096,000 | ) | 0.29 | |||||
Forfeited
|
(1,142,856 | ) | 1.75 | |||||
Outstanding as of September 30, 2010
|
12,604,000 | $ | 0.47 | |||||
Granted
|
3,150,000 | 0.50 | ||||||
Exercised
|
(5,082,000 | ) | 0.25 | |||||
Forfeited
|
- | - | ||||||
Outstanding as of September 30, 2011
|
10,672,000 | $ | 0.58 | |||||
Exercisable as of September 30, 2011
|
8,422,000 | $ | 0.60 |
Care Services
|
Stains and Reagents
|
Total
|
||||||||||
Year Ended September 30, 2011
|
||||||||||||
Sales to external customers
|
$ | 333,902 | $ | 437,489 | $ | 771,391 | ||||||
Segment income (loss)
|
$ | (7,717,864 | ) | $ | (180,849 | ) | $ | (7,898,713 | ) | |||
Segment assets
|
$ | 716,400 | $ | 290,530 | $ | 1,006,930 | ||||||
Depreciation and amortization
|
$ | 151,346 | $ | 7,154 | $ | 158,500 | ||||||
Year Ended September 30, 2010
|
||||||||||||
Sales to external customers
|
$ | 74,258 | $ | 474,066 | $ | 548,324 | ||||||
Segment income (loss)
|
$ | (11,523,273 | ) | $ | (115,522 | ) | $ | (11,638,795 | ) | |||
Segment assets
|
$ | 2,549,824 | $ | 185,442 | $ | 2,735,266 | ||||||
Depreciation and amortization
|
$ | 56,281 | $ | 19,329 | $ | 75,610 |
2011
|
2010
|
|||||||||
Net operating loss carryforwards
|
$ | 8,295,000 | $ | 4,981,000 | ||||||
Depreciation and reserves
|
25,000 | 12,000 | ||||||||
Stock based compensation
|
898,000 | 725,000 | ||||||||
Accrued vacation
|
15,000 | 8,000 | ||||||||
Valuation allowance
|
(9,233,000 | ) | (5,726,000 | ) | ||||||
Total
|
$ | - | $ | - |
2011
|
2010
|
|||||||||
Federal income tax benefit at statutory rate
|
$ | 2,686,000 | $ | 3,957,000 | ||||||
State income tax benefit, net of federal income tax effect
|
261,000 | 384,000 | ||||||||
Non-deductible expenses
|
5,000 | 3,000 | ||||||||
Change in valuation allowance
|
(3,507,000 | ) | (4,947,000 | ) | ||||||
Change in effective tax rate
|
555,000 | 603,000 | ||||||||
Benefit for income taxes
|
$ | - | $ | - |
Lease Obligations
|
||||
Year Ending September 30:
|
||||
2012
|
$ | 143,446 | ||
2013
|
141,497 | |||
2014
|
104,259 | |||
2015
|
87,171 | |||
2016
|
15,970 | |||
Total
|
$ | 492,343 |
ActiveCare, Inc.
|
|
By: /s/ James J. Dalton
|
|
James J. Dalton, Chief Executive Officer | |
Date: December 27, 2011
|
(Principal Executive Officer) |
Signature
|
Title
|
Date
|
||
/s/ James J. Dalton
|
Director, Chairman, and
|
December 27, 2011
|
||
James J. Dalton
|
Chief Executive Officer
|
|||
(Principal Executive Officer)
|
||||
/s/ David S. Boone
|
Director
|
|||
David S. Boone
|
December 27, 2011
|
|||
/s/ James G. Carter
|
||||
James G. Carter
|
Director
|
December 27, 2011
|
||
/s/ Robert J. Welgos
|
||||
Robert J. Welgos
|
Director
|
December 27, 2011
|
||
/s/ William K. Martin
|
||||
William K. Martin
|
Director
|
December 27, 2011
|
||
/s/ Jack J. Johnson
|
||||
Jack J. Johnson
|
Director
|
December 27, 2011
|
||
/s/ Michael G. Acton
|
Chief Financial Officer
|
December 27, 2011
|
||
Michael G. Acton
|
(principal financial officer)
|
|||
(principal accounting officer)
|
1.
|
I have reviewed this Annual Report on Form 10-K of ACTIVECARE, INC. for the year ended September 30, 2011,
|
||
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
||
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
||
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting ( as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the registrant and have:
|
||
(a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
||
(b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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 principals;
|
||
(c)
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
||
(d)
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
||
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
||
(a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
||
(b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
||
/s/ James J. Dalton
|
|||
James J. Dalton
|
|||
Chief Executive Financial Officer
|
|||
Dated: December 27, 2011
|
1.
|
I have reviewed this Annual Report on Form 10-K of ACTIVECARE, INC. for the year ended September 30, 2011,
|
||
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
||
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
||
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting ( as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the registrant and have:
|
||
(a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
||
(b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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 principals;
|
||
(c)
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
||
(d)
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
||
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
||
(a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
||
(b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
||
/s/Michael G. Acton
|
|||
Michael G. Acton
|
|||
Chief Financial Officer
|
|||
Dated: December 27, 2011
|
1.
|
Such Annual Report on Form 10-K for the period ended September 30, 2011, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
2.
|
The information contained in such Annual Report on Form 10-K for the period ended September 30, 2011, fairly presents, in all material respects, the financial condition and results of operations of ActiveCare, Inc.
|
ACTIVECARE, INC.
|
||
Date: December 27, 2011
|
By:
|
/s/ James J. Dalton
|
James J. Dalton
|
||
Chief Executive Officer and
Chairman of the Board of Directors
|
ACTIVECARE, INC.
|
||
Date: December 27, 2011
|
By:
|
/s/ Michael G. Acton
|
Michael G. Acton
|
||
Principal Financial Officer
|
Summary of Significant Accounting Policies
|
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Significant Accounting Policies [Text Block] | 2. Summary of Significant Accounting Policies Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Fair Value of Financial Instruments The carrying amounts reported in the accompanying financial statements for cash, accounts receivable, accounts payable, accrued liabilities, and other debt obligations approximate fair values because of the immediate or short-term maturities of these financial instruments. Concentration of Credit Risk The Company has cash in bank accounts that, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. As of September 30, 2011, the cash balance on the Company’s bank account did not exceed the federally insured limit. In the normal course of business, the Company provides credit terms to its customers. Accordingly, the Company performs ongoing credit evaluations of its customers’ financial condition and requires no collateral from its customers. The Company maintains an allowance for uncollectable accounts receivable based upon the expected collectability of all accounts receivable. During the fiscal year ended September 30, 2011, revenue from one customer of Care Services represents 25% of the Company’s consolidated revenue and revenue from one customer of Reagents represents 10% of the total revenue. During the fiscal year ended September 30, 2010, revenue from one customer of Reagents represents 26% of the Company’s consolidated revenue. Cash and Cash Equivalents Cash and cash equivalents consist of cash and investments with original maturities to the Company of three months or less. Accounts Receivable Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Specific reserves are estimated by management based on certain assumptions and variables, including the customer’s financial condition, age of the customer’s receivables and changes in payment histories. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. A trade receivable is considered to be past due if any portion of the receivable balance has not been received by the contractual pay date. Interest is not charged on trade receivables that are past due. Inventories Inventories are recorded at the lower of cost or market, cost being determined on a first-in, first-out (“FIFO”) method. Reagent inventories consist of raw materials, work-in-process, and finished goods. Care Services inventory consist of ActiveHome inventories. Inventories as of September 30, 2011 and 2010 were as follows:
Provisions, when required, are made to reduce excess and obsolete inventories to their estimated net realizable values. Due to competitive pressures and technological innovation, it is possible that estimates of the net realizable value could change in the near term. Investments On May 21, 2010, the Company entered into a “Co-Development and Exclusive Distribution Agreement” with Vista Therapeutics, Inc. (“Vista”) for the development and co-marketing of NanoBiosensor™ -based biomarker assessment products for use with the Company’s proprietary line of continuous patient monitoring products marketed to the elderly and senior market. In connection with the Co-Development Agreement, the Company made an investment in Vista’s Series B Preferred Stock in the amount of $50,000. The Vista Series B Preferred Stock is convertible into Common Stock of Vista under certain conditions and grants to the holder certain rights and preferences, subject to prior rights granted to the holders of Vista’s Series A-1 Preferred Stock and Series A-2 Preferred Stock. The Company impaired the full value of the investment during the year ended September 30, 2011. Revenue Recognition The Company’s revenue has historically been from three sources: (i) sales from Care Services; (ii) diagnostic equipment product sales and sales of medical diagnostic stains from reagents. Care Services “Care Services” include contracts in which the Company provides monitoring services to end users and sales of devices to distributors. The Company typically enters into contracts on a month-to-month basis with customers (members) that use the Company’s Care Services. However, these contracts may be cancelled by either party at anytime with 30 days notice. Under the Company’s standard contract, the device becomes billable on the date the customer (member) orders the product, and remains billable until the device is returned to the Company. The Company recognizes revenue on devices at the end of each month that Care Services have been provided. In those circumstances in which the Company receives payment in advance, the Company records these payments as deferred revenue. The Company recognizes Care Services revenue when persuasive evidence of an arrangement with the customer exists, title passes to the customer, prices are fixed or determinable and collection is reasonably assured. Shipping and handling fees are included as part of net sales. The related freight costs and supplies directly associated with shipping products to customers are included as a component of cost of goods sold. Customers order the Company’s product lines by phone or website. The Company does not enter into long-term contracts. All of the Company Care Services sales are made with net 30-day payment terms. In connection with generally accepted accounting principles to qualify for the recognition of revenue at the time of sale, the Company notes the following:
Accounting standards state that, “an enterprise shall report revenues from external customers for each product and service or each group of similar products and services unless it is impractical to do so.” In the Care Services revenue line, the vast majority of the Company’s sales are Care Service revenue. Because Care Service equipment sales are not material to the financial statements, the Company discloses sales as one line item. The Company’s revenue recognition policy for sales to distributors is the same as the policy for sales to end-users. A customer qualifies as a distributor by completing a distributor application and proving its sales tax status. The Company’s distributors are not required to maintain specified amounts of product on hand, and distributors are not required to make minimum purchases to maintain distributor status. Distributors have no stock rotation rights or additional rights of return. Revenues from products sold with long-term service contracts are recognized ratably over the expected life of the contract. Sales to distributors are recorded net of discounts. Sales returns have been negligible, and any and all discounts are known at the time of sale. Sales are recorded net of sales returns and sales discounts. There are no significant judgments or estimates associated with the recording of revenues. The majority of our revenue transactions do not have multiple elements. On occasion, we have revenue transactions that have multiple elements (such as device sales to distributors). In these situations, the Company provides the distributor with the ActiveOne™ device and a monthly monitoring service, which are both included in the contracted pricing. In these multiple element revenue arrangements, we consider whether: (i) the deliverables have value on a standalone basis to the distributors, and (ii) the distributors have a general right of return. The Company has determined that these elements do have standalone value to distributors and that the performance of undelivered items is probable and substantially within the control of the Company. Therefore, in accordance with accounting standards, the Company has determined that these revenue elements should be considered as separate units of accounting. Accounting standards state that arrangement consideration shall be allocated at the inception of the arrangement to all deliverables on the basis of their relative selling price. When applying the relative selling price method, the selling price for each deliverable shall be determined using vendor-specific objective evidence of selling price, if it exists; otherwise, third-party evidence will be used to determine the selling price. If neither vendor-specific objective evidence nor third-party evidence of selling price exists for a deliverable, the vendor shall use its best estimate of the selling price for that deliverable. The Company does not currently sell, nor does it have intentions to sell the ActiveOne™ device separately from the monthly monitoring service, therefore the Company is not able to determine vendor-specific objective evidence of selling price. The Company is also unable to determine third-party evidence of selling price, because there is not a similar product in the market. The ActiveOne™ device is the only device in the market with fall detection technology. The Company is therefore required to determine its best estimate of selling price in order to determine the relative selling price of the separate deliverables in its revenue arrangements. In order to determine the best estimate of selling price of the ActiveOne™ device, the Company included the following cost components in its estimate: production costs, development costs, PTCRB certification costs, and estimated gross margin. In order to determine the best estimate of the monthly monitoring service, the Company included the following components in its estimate: monthly communication cost, monitoring labor costs, PSAP database and monthly maintenance costs, and estimated gross margin. The Company allocates the arrangement costs based on these best estimates of selling price. The relative selling price allocated to the sale of the ActiveOne™ device is recognized when the device is delivered to the distributor. The relative selling price of the monitoring service is recognized monthly when the services have been provided. Reagents The Company recognizes medical diagnostic stains revenue when persuasive evidence of an arrangement with the customer exists, title passes to the customer, prices are fixed or determinable and collection is reasonably assured. Shipping and handling fees are included as part of net sales. The related freight costs and supplies directly associated with shipping products to customers are included as a component of cost of goods sold. Neither the sale of diagnostic equipment nor the sale of medical diagnostic stains contains multiple deliverables. Customers order the Company’s diagnostic stain product lines by purchase order. The Company does not enter into long-term contracts. Its diagnostic equipment sales were $3,150 for the year ended September 30, 2011 and its medical diagnostic stain sales were $434,339 the year ended September 30, 2011. All of the Company’s sales are made with net 30-day payment terms. In connection with generally accepted accounting principles to qualify for the recognition of revenue at the time of sale, the Company notes the following:
The Company’s diagnostic stain products have not been modified significantly for several years. There is significant history on which to base the Company’s estimates of sales returns. These sales returns have been negligible. The Company has 70 types of products based on the number of individual stock-keeping units (“SKUs”) in its inventory. Most of these 70 SKUs are for medical diagnostic stain inventory. For example, certain medical diagnostic stains are packaged in different sizes, and each packaged size (i.e. 16 oz., 32 oz., and 48 oz.) has a unique SKU in inventory. Accounting standards state that, “an enterprise shall report revenues from external customers for each product and service or each group of similar products and services unless it is impractical to do so.” The vast majority of the Company’s sales are of medical diagnostic stains, with a minimal portion of sales being diagnostic equipment. Because diagnostic equipment sales are not material to the financial statements, the Company discloses both types of sales as one line item. The Company’s revenue recognition policy for sales to distributors is the same as the policy for sales to end-users. A customer qualifies as a distributor by completing a distributor application and proving its sales tax status. Upon qualifying as a distributor, a customer receives a 35% discount from retail prices, and the distributor receives an additional 5% discount when product is purchased in case quantities. The Company’s distributors are not required to maintain specified amounts of product on hand, and distributors are not required to make minimum purchases to maintain distributor status. Distributors have no stock rotation rights or additional rights of return. Sales to distributors are recorded net of discounts. Sales returns have been negligible, and any and all discounts are known at the time of sale. Sales are recorded net of sales returns and sales discounts. There are no significant judgments or estimates associated with the recording of revenues. Although not the focus of the Company’s new business model, the Company also sells diagnostic devices in certain situations. The Company recognizes product sales revenue when persuasive evidence of an arrangement with the customer exists, title passes to the customer and the customer cannot return the devices, prices are fixed or determinable and collection is reasonably assured. Because diagnostic equipment sales are not material to the financial statements, the Company discloses the sales as one line item for Reagents in the statement of operation. Research and Development Costs All expenditures for research and development are charged to expense as incurred. These expenditures in both 2011 and 2010 were for the development of a medical home monitoring device and associated services. For the years ended September 30, 2011 and 2010, research and development expenses were $321,245 and $458,047, respectively. Advertising Costs The Company expenses advertising costs as incurred. Advertising expenses for the years ended September 30, 2011 and 2010 were approximately $597,933 and $420,394, respectively. Virtually all of this advertising expense relates to the Company’s Care Service segment. Income Taxes The Company recognizes deferred income tax assets or liabilities for the expected future tax consequences of events that have been recognized in the financial statements or income tax returns. Deferred income tax assets or liabilities are determined based upon the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates expected to apply when the differences are expected to be settled or realized. Deferred income tax assets are reviewed periodically for recoverability and valuation allowances are provided as necessary. Interest and penalties related to income tax liabilities, when incurred, are classified in interest expense and income tax provisions, respectively. Warrant Exercises The Company issues common shares from warrant exercises once it has received verification of the funds deposited and has received an exercise letter from the warrant holder. Net Loss Per Common Share Basic net loss per common share (“Basic EPS”) is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per common share (“Diluted EPS”) is computed by dividing net loss by the sum of the weighted average number of common shares outstanding and the weighted-average dilutive common share equivalents then outstanding. The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect. Common share equivalents consist of shares issuable upon the exercise of common stock warrants, and shares issuable from restricted stock grants. As of September 30, 2011 and 2010, there were 11,309,000 and 12,604,000 outstanding common share equivalents, respectively, that were not included in the computation of diluted net loss per common share as their effect would be anti-dilutive. Recent Accounting Pronouncements In June 2009, the Financial Accounting Standards Board (“FASB”) issued accounting guidance on the consolidation of variable interest entities (“VIEs”). This guidance revised previous guidance by eliminating the exemption for qualifying special purpose entities, by establishing a new approach for determining who should consolidate a variable-interest entity and by changing when it is necessary to reassess who should consolidate a variable-interest entity. This guidance was effective at the beginning of the first fiscal year beginning after November 15, 2009. The Company adopted this guidance on October 1, 2010. The application of this guidance did not have a material impact on the Company’s financial statements. In September 2009, the FASB issued guidance that changes the existing multiple-element revenue arrangements guidance currently included under its Revenue Arrangements with Multiple Deliverables codification. The revised guidance primarily provides two significant changes: 1) eliminates the need for objective and reliable evidence of the fair value for the undelivered element in order for a delivered item to be treated as a separate unit of accounting, and 2) eliminates the residual method to allocate the arrangement consideration. In addition, the guidance also expands the disclosure requirements for revenue recognition. This was effective for the first annual reporting period beginning on or after June 15, 2010, with early adoption permitted provided that the revised guidance is retroactively applied to the beginning of the year of adoption. The Company adopted this guidance effective October 1, 2010 and recognized $25,456 of deferred revenue. In October 2009, the FASB issued guidance on share-lending arrangements entered into on an entity’s own shares in contemplation of a convertible debt offering or other financing. This guidance was effective for fiscal years beginning on or after December 15, 2009, and interim periods within those fiscal years for arrangements outstanding as of the beginning of those years. The Company adopted this guidance on October 1, 2010. The application of this guidance did not have a material impact on the Company’s financial statements. |