ACTIVECARE, INC. - FORM 8-K/A - EX-99.1 - FINANCIAL INFORMATION

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8-K/A - ACTIVECARE, INC. 8K 2012-11-26 - ACTIVECARE, INC.	activecare8k20121126.htm

4G Biometrics, LLC

Financial Statements

As of September 30, 2011 and 2010 and

For the Years Then Ended

Together with Report of Independent Registered Public Accounting Firm

Table of Contents

	Page

Report of Independent Registered Public Accounting Firm	3

Balance Sheets as of September 30, 2011 and 2010	4

Statements of Operations for the Years Ended September 30, 2011 and 2010	5

Statements of Members’ Deficit for the Years Ended September 30, 2011 and 2010	6

Statements of Cash Flows for the Years Ended September 30, 2011 and 2010	7

Notes to Financial Statements	8

Report of Independent Registered Public Accounting Firm

To the Board of Managers

4G Biometrics, LLC

We have audited the accompanying balance sheets as of September 30, 2011 and 2010 and the related statements of operations, members’ deficit and cash flows of 4G Biometrics, LLC (the Company) for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, audits of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of 4G Biometrics, LLC as of September 30, 2011 and 2010 and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has generated minimal profitability in 2011, has cumulative negative cash flows from operating activities, has negative working capital, and has negative equity. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Tanner LLC

Salt Lake City, Utah

November 21, 2012

4G BIOMETRICS, LLC

BALANCE SHEETS

AS OF SEPTEMBER 30, 2011 AND 2010

	2011			2010
Assets
Current assets:
Cash	$	28,821		$	2,637
Accounts receivable		21,659			-
Note receivable		2,400			-
Total current assets		52,880			2,637

Total assets	$	52,880		$	2,637

Liabilities and Members’ Deficit
Current liabilities:
Accounts payable	$	7,646		$	-
Accrued liabilities		81,802			91,293
Total current liabilities		89,448			91,293
Note payable to related party		50,000			-
Total liabilities		139,448			91,293

Commitments and contingencies (Notes 1 and 6)

Members’ deficit:
Membership units, 2,700,000 common units issued and outstanding		-			-
Members’ deficit		(86,568	)		(88,656	)
Total members’ deficit		(86,568	)		(88,656	)

Total liabilities and members’ deficit	$	52,880		$	2,637

See accompanying notes to financial statements.

4G BIOMETRICS, LLC

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED SEPTEMBER 30, 2011 AND 2010

	2011			2010

Revenues	$	85,098		$	-
Cost of revenues		(38,869	)		-
Gross margin		46,229			-

Selling, general and administrative expenses		41,641			61,366

Operating income (loss)		4,588			(61,366	)

Interest expense		(2,500	)		-
Net income (loss)	$	2,088		$	(61,366	)

See accompanying notes to financial statements.

4G BIOMETRICS, LLC

STATEMENTS OF MEMBERS’ DEFICIT

FOR THE YEARS ENDED SEPTEMBER 30, 2011 AND 2010


	Number of Membership Units		Members’ Deficit			Total Members’ Deficit

Balance as of October 1, 2009		2,700,000	$	(27,290	)	$	(27,290	)

Net loss		-		(61,366	)		(61,366	)

Balance as of September 30, 2010		2,700,000		(88,656	)		(88,656	)

Net income		-		2,088			2,088

Balance as of September 30, 2011		2,700,000	$	(86,568	)	$	(86,568	)

See accompanying notes to financial statements.

4G BIOMETRICS, LLC

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED SEPTEMBER 30, 2011 AND 2010

	2011			2010

Cash flows from operating activities:
Net income (loss)	$	2,088		$	(61,366	)
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Changes in operating assets and liabilities:
Accounts receivable		(21,659	)		-
Accounts payable		7,646			-
Accrued liabilities		(9,491	)		64,003
Net cash (used in) provided by operating activities		(21,416	)		2,637

Cash flows from investing activities:
Issuance of note receivable		(2,400	)		-

Cash flows from financing activities:
Proceeds from issuance of note payable to related party		50,000			-

Net increase in cash		26,184			2,637
Cash, beginning of the year		2,637			-

Cash, end of the year	$	28,821		$	2,637

See accompanying notes to financial statements.

4G BIOMETRICS, LLC

NOTES TO FINANCIAL STATEMENTS

(1)	Organization and Nature of Operations

General

4G Biometrics, LLC (the “Company” or “4G”) was organized as a limited liability company on September 22, 2009 under the laws of the state of Texas. The Company is engaged as a distributor of diabetic testing supplies in the United States. Subsequent to the acquisition discussed in Note 6, the Company is being operated as a wholly owned subsidiary of ActiveCare, Inc.

Going Concern

The Company has generated minimal profitability in 2011, has cumulative negative cash flows from operating activities, has negative working capital of $36,568 and has a members’ deficit of $86,568 as of September 30, 2011. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Management’s plans with respect to this uncertainty include increasing the Company’s sales to diabetic patients through investing capital into additional marketing resources and reducing costs through synergistic use of resources with ActiveCare, Inc. Additional debt or equity funding will be required. There can be no assurance that this additional funding will be obtained or that if it is obtained, that revenues will increase rapidly enough to exceed expenses and provide the necessary cash flows to repay debts and meet the Company’s ongoing obligations. If the Company is unable to increase cash flows from operating activities or obtain additional financing, it will be unable to continue the development of its products and may have to cease operations.

(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 the 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.

Concentration of Credit Risk

In the normal course of business, the Company provides credit terms to its customers and requires no collateral. Accordingly, the Company performs ongoing credit evaluations of its customers’ financial condition. Based upon the Company’s analysis of each customer and the expected collectability of the related accounts receivable, no allowance for doubtful accounts has been made as of September 30, 2011 and 2010.

Two customers were responsible for the majority of the Company’s revenues for the year ended September 30, 2011. One customer accounted for 39.7%, and the other accounted for 20.1% of total revenues. The effect of the loss of these customers would be material to the future financial performance of the Company.

Cost of revenues is generated from purchases from one vendor. Management believes that other vendors could provide similar products on comparable terms.

Cash

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.

4G BIOMETRICS, LLC

NOTES TO FINANCIAL STATEMENTS

Continued

Cash (Continued)

The Company had no cash in excess of federally insured limits as of September 30, 2011 and 2010. The Company had no cash equivalents as of September 30, 2011 and 2010.

Accounts Receivable

Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables, if necessary, 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 insurance coverage and age of the customer’s receivables. Receivables are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded when cash is received. A receivable is considered to be past due if any portion of the receivable balance has not been received by the Company within its normal terms. Interest is not charged on receivables that are past due.

Revenue Recognition

The Company recognizes revenue when persuasive evidence of an arrangement exists, the product or service has been provided to the customer, the sales price is fixed or determinable, and collectability is reasonably assured. Advance billings are deferred and recognized as the related services are performed.

Income Taxes

As a limited liability company, the Company’s taxable income or loss is the responsibility of the members, therefore, no provision or liability for income taxes has been included in the accompanying financial statements.

As of September 30, 2011 and 2010, the Company had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements. The Company’s 2011, 2010 and 2009 tax returns are open to federal and state income tax examination.

Subsequent Events

Management has evaluated events and transactions for potential recognition or disclosure through November 21, 2012, which is the date the financial statements were available to be issued.

(3)	Accrued Liabilities

Accrued liabilities consisted of the following as of September 30, 2011 and 2010:


	2011		2010
Accrued member expense reimbursements	$	75,807	$	91,293
Other		5,995		-
	$	81,802	$	91,293

(4)	Capital Structure

As of September 30, 2011, outstanding membership units consisted of 2,700,000 common units.

The holders of the common units have one vote per common unit on all matters to be voted on. There are no liquidation, dividend or conversion preferences associated with the common units.

4G BIOMETRICS, LLC

NOTES TO FINANCIAL STATEMENTS

Continued

(5)	Note Payable to Related Party

The Company has an unsecured promissory note payable to an individual related to one of its members. This note bears interest at an annual rate of 10% and is due April 8, 2013.

(6)	Subsequent Event

On March 8, 2012, the Company was acquired by ActiveCare, Inc. (ActiveCare). Pursuant to the acquisition agreement, ActiveCare acquired 100 percent of the member interests of 4G. 4G is operated as a wholly owned subsidiary of ActiveCare. As amended, the purchase price for the member interests of 4G consisted of the following:

$350,000 in cash;

The assumption of $50,000 of accounts payable and accrued liabilities;

160,000 shares of ActiveCare’s Series D convertible preferred stock;

Options for the purchase of up to 4,333,333 shares of ActiveCare’s common stock at $0.10 per share to each of the three sellers with vesting as follows:

Options for 433,333 shares vest when 4G has 9,300 customers;

Options for another 433,333 shares vest when an additional 5,000 4G customers are added, or a total of 14,300 customers;

Options for another 433,333 shares vest when an additional 5,000 4G customers are added, or a total of 19,300 customers; and

Options for another 433,333 shares vest when an additional 5,000 4G customers are added, or a total of 24,300 customers; and so forth until fully vested.

Three of 4G’s key personnel continue to manage the operations of 4G under written employment agreements.

Under the purchase method of accounting, the total purchase price has been preliminarily allocated to 4G’s assets and liabilities based on their estimated fair values as of the closing date of the acquisition. The excess of the purchase price over the identified net assets of $929,305 has been recorded as goodwill.

4G Biometrics, LLC

Condensed Financial Statements (Unaudited)

As of December 31, 2011 and September 30, 2011

And For the Three Months Ended December 31, 2011 and 2010

Table of Contents

	Page

Condensed Balance Sheets (Unaudited)	3

Condensed Statements of Operations (Unaudited)	4

Condensed Statements of Cash Flows (Unaudited)	5

Notes to Condensed Financial Statements (Unaudited)	6

4G BIOMETRICS, LLC

CONDENSED BALANCE SHEETS (UNAUDITED)

AS OF DECEMBER 31, 2011 AND SEPTEMBER 30, 2011

	December 31,		September 30,
	2011		2011
Assets
Current assets:
Cash	$	8,717	$	28,821
Accounts receivable		9,215		21,659
Note receivable		5,500		2,400
Total current assets		23,432		52,880

Total assets	$	23,432	$	52,880

Liabilities and Members’ Deficit
Current liabilities:
Accounts payable	$	6,106	$	7,646
Accrued liabilities		66,242		81,802
Total current liabilities		72,348		139,448

Note payable to related party	50,000	50,000
Total liabilities	122,348	139,448

Commitments and contingencies (Notes 1 and 6)


Members’ deficit:
Membership units, 2,700,000 common units outstanding	-		-
Members’ deficit	(98,916	)	(86,568	)
Total members’ deficit	(98,916	)	(86,568	)

Total liabilities and members’ deficit

23,432

52,880

See accompanying notes to condensed financial statements.

4G BIOMETRICS, LLC

CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE THREE MONTHS ENDED DECEMBER 31, 2011 AND 2010

	2011			2010

Revenues	$	19,428		$	3,779
Cost of revenues		(9,623	)		(195	)
Gross margin		9,805			3,584

Selling, general and administrative expenses		20,903			14,703

Operating loss		(11,098	)		(11,119	)
Interest expense		(1,250	)		-
Net loss	$	(12,348	)	$	(11,119	)

See accompanying notes to condensed financial statements.

4G BIOMETRICS, LLC

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE THREE MONTHS ENDED DECEMBER 31, 2011 AND 2010

	2011			2010

Cash flows from operating activities:
Net loss	$	(12,348	)	$	(11,119	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Changes in operating assets and liabilities:
Accounts receivable		12,444			-
Accounts payable		(1,540	)		-
Accrued liabilities		(15,560	)		13,617

Net cash (used in) provided by operating activities		(17,004	)		2,498

Cash flows from investing activities:

Issuance of note receivable		(3,100	)		-

Net (decrease) increase in cash		(20,104	)		2,498

Cash, beginning of the period		28,821			2,637

Cash, end of the period	$	8,717		$	5,135

See accompanying notes to condensed financial statements.

4G BIOMETRICS, LLC

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(1)	Organization and Nature of Operations

General

Going Concern

The Company has not generated profitability in the periods presented, has cumulative negative cash flows from operating activities, and has negative working capital of $48,916 and $36,568 and members’ deficits of $98,916 and $86,568 as of December 31, 2011 and September 30, 2011, respectively. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Management’s plans with respect to this uncertainty include increasing the Company’s sales to diabetic patients through investing capital into additional marketing resources and reducing costs through synergistic use of resources with ActiveCare, Inc. Additional debt or equity financing will be required. There can be no assurance that this additional funding will be obtained or that if it is obtained, that revenues will increase rapidly enough to exceed expenses and provide the necessary cash flows to repay debts and meet the Company’s ongoing obligations. If the Company is unable to increase cash flows from operating activities or obtain additional financing, it will be unable to continue the development of its products and may have to cease operations.

(2)	Summary of Significant Accounting Policies

Use of Estimates in the Preparation of Financial Statements

Concentration of Credit Risk

Three customers were responsible for the majority of the Company’s revenues for the three months ended December 31, 2011. These customers each accounted for 21.6%, 19.8% and 18.2% of total revenues. The effect of the loss of these customers would be material to the future financial performance of the Company.

Cost of revenues is primarily generated from purchases from one vendor. Management believes that other vendors could provide similar products on comparable terms.

Cash

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.

4G BIOMETRICS, LLC

NOTES TO CONDENSED FINANCIAL STATEMENTS

Continued

Cash (Continued)

The Company had no cash in excess of federally insured limits as of December 31, 2011 and September 30, 2011.

Accounts Receivable

Revenue Recognition

Income Taxes

As of December 31, 2011 and September 30, 2011, the Company had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements. The Company’s 2011, 2010 and 2009 tax returns are open to federal and state income tax examination.

Subsequent Events

Management has evaluated events and transactions for potential recognition or disclosure through November 21, 2012, which is the date the financial statements were available to be issued.

(3)	Accrued Liabilities

Accrued liabilities consisted of the following as of December 31, 2011 and September 30, 2011:


	December 31,		September 30,
	2011		2011
Accrued member expense reimbursements	$	62,492	$	75,807
Other		3,750		5,995
	$	66,242	$	81,802

(4)	Capital Structure

As of December 31, 2011, outstanding membership units consisted of 2,700,000 common units.

The holders of the common units have one vote per common unit on all matters to be voted on. There are no liquidation, dividend or conversion preferences associated with the common units.

4G BIOMETRICS, LLC

NOTES TO CONDENSED FINANCIAL STATEMENTS

Continued

(5)	Note Payable to Related Party

The Company has an unsecured promissory note payable to an individual related to one of its members. This note bears interest at an annual rate of 10% and is due April 8, 2013.

(6)	Subsequent Event

$350,000 in cash ;