Exhibit 99.1

 

 

TABLE OF CONTENTS

	PAGE
INDEPENDENT AUDITORS’ REPORT	F-1
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 2011 AND 2010	F-2
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010	F-3
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER’S EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010	F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010	F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	F-6 – F-10

 

 

INDEPENDENT AUDITORS' REPORT

 

To the Member of

SleepHealth, LLC and Subsidiaries

Monroe, Georgia

 

We have audited the accompanying consolidated balance sheets of SleepHealth, LLC and subsidiaries (the "Company") as of December 31, 2011 and 2010, and the related consolidated statements of operations, changes in member’s equity (deficit), and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements referred to above are free of material misstatement. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of SleepHealth, LLC and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has incurred historical losses and management expects the Company will continue to incur operating losses and negative cash flows. These conditions raise substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters also are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

 

/s/ Habif, Arogeti & Wynne, LLP

Atlanta, Georgia.

 

December 14, 2012

 

 

SleepHealth, LLC and Subsidiaries

Consolidated Balance Sheets

December 31,

 

ASSETS
		2011				2010
CURRENT ASSETS
Cash		$	22,024			$	13,763
Accounts receivable, net of allowance for uncollectible amounts of $10,830 and $20,697 at December 31, 2011 and 2010, respectively			163,166				233,637
Prepaid expenses			3,683				-
TOTAL CURRENT ASSETS			188,873				247,400
PROPERTY AND EQUIPMENT, NET			128,849				210,648
DEPOSITS			1,500				-
TOTAL ASSETS		$	319,222			$	458,048
LIABILITIES AND MEMBER'S EQUITY (DEFICIT)
CURRENT LIABILITIES
Lines of credit		$	72,286			$	77,575
Accounts payable			31,009				27,916
Accrued compensation			23,831				9,605
Accrued expenses			28,280				29,857
Current maturities of notes payable			109,600				85,568
Advances from member			13,209				3,209
TOTAL CURRENT LIABILITIES			278,215				233,730
Notes payable, net of current maturities			54,603				65,444
TOTAL LIABILITIES			332,818				299,174
COMMITMENTS AND CONTINGENCIES
MEMBER'S EQUITY (DEFICIT)
Noncontrolling interest			-				104,848
Member's equity (deficit)			(13,596	)			54,026
TOTAL MEMBER'S EQUITY (DEFICIT)			(13,596	)			158,874
TOTAL LIABILITIES AND MEMBER'S EQUITY (DEFICIT)		$	319,222			$	458,048

  

See the accompanying notes to the consolidated financial statements.

 

 

SleepHealth, LLC and Subsidiaries

Consolidated Statements of Operations

For the Years Ended December 31,

 

		2011				2010
REVENUE		$	1,270,579			$	1,221,020
COST OF REVENUE			969,991				949,815
Gross Profit			300,588				271,205
OPERATING EXPENSES
Sales and marketing			13,855				5,974
General and administrative			327,226				281,870
Total Operating Expenses			341,081				287,844
LOSS FROM OPERATIONS			(40,493	)			(16,639	)
OTHER INCOME (EXPENSE)
Interest expense			(26,045	)			(44,340	)
Other income			36				372
Total Other Income (Expense)			(26,009	)			(43,968	)
NET LOSS		$	(66,502	)		$	(60,607	)
Attributable to:
Controlling member		$	(54,198	)		$	(37,833	)
Noncontrolling interests		$	(12,304	)		$	(22,774	)

 

See the accompanying notes to the consolidated financial statements.

 

 

SleepHealth, LLC and Subsidiaries

Consolidated Statement of Changes in Member's Equity (Deficit)

For the Years Ended December 31, 2011 and 2010

 

		Member's Equity				Noncontrolling Interest				Total
Beginning balance, December 31, 2009		$	122,071			$	138,597			$	260,668
Net loss			(37,833	)			(22,774	)			(60,607	)
Distributions to member			(30,212	)			(10,975	)			(41,187	)
Ending balance, December 31, 2010			54,026				104,848				158,874
Net loss			(54,198	)			(12,304	)			(66,502	)
Distributions to member			(4,191	)			(1,702	)			(5,893	)
Acquisition of noncontrolling interest			(9,233	)			(90,842	)			(100,075	)
Ending balance, December 31, 2011		$	(13,596	)		$	0			$	(13,596	)

 

See the accompanying notes to the consolidated financial statements.

 

 

SleepHealth, LLC and Subsidiaries

Consolidated Statements of Cash Flows  

For the Years Ended December 31,

 

		2011				2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(66,502	)		$	(60,607	)
Adjustment to reconcile net loss to cash used in operating activities
Depreciation			82,592				118,190
Increase (decrease) in working capital items
Accounts receivable			70,471				119,211
Shareholder advances			10,000				(15,805	)
Accounts payable			3,093				(2,545	)
Accrued compensation and expenses			12,650				(7,337	)
Other			(5,184	)			10,907
Net cash provided by operating activities			107,120				162,014
CASH FLOWS FROM INVESTING ACTIVITIES
Equipment purchased			(792	)			(47,102	)
Net cash used in investing activities			(792	)			(47,102	)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on equipment loans			(56,212	)			(31,602	)
Proceeds from equipment loan			-				10,567
Payments on lines of credit			(5,289	)			(36,754	)
Distributions to member			(5,893	)			(41,187	)
Payments on loan from former non-controlling interest			(30,673	)			(9,056	)
Net cash used by financing activities			(98,067	)			(108,032	)
NET INCREASE IN CASH			8,261				6,880
CASH - BEGINNING OF YEAR			13,763				6,883
CASH - END OF YEAR		$	22,024			$	13,763
CASH PAID DURING THE YEAR FOR
Interest		$	26,045			$	44,340

 

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES

On June 15, 2011, the Company purchased the outstanding ownership interest in SleepHealth

North Carolina, LLC with a note payable in the amount of $108,0000.  See Note 7.      

 

See the accompanying notes to the consolidated financial statements.  

 

 

SleepHealth, LLC and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

 

NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

History and Nature of Business

SleepHealth, LLC (the “Company”) was organized in 2002 by Ailene Miller as a limited liability company in the state of Georgia. Ms. Miller is the sole owner of SleepHealth, LLC. The Company provides sleep management services to patients in hospitals and physicians’ offices in the state of Georgia.

 

SleepHealth North Carolina, LLC was organized in 2007 as a limited liability company, also in the state of Georgia, and was owned equally by the Company and Michael Dyer. SleepHealth North Carolina, LLC provides sleep management services to patients in hospitals and physicians’ offices in the states of North Carolina and South Carolina. In June 2011, the Company purchased Mr. Dyer’s ownership interest in SleepHealth North Carolina, LLC (Note 7).

 

Principles of Consolidation

The consolidated financial statements are composed of SleepHealth, LLC, SleepHealth North Carolina, LLC, SleepHealth Texas, LLC, (“Texas”), SleepHealth Partners, LLC and Children’s Sleep Centers, Inc. (collectively “the Company”). All material intercompany transactions have been eliminated. Operations for SleepHealth Texas, LLC were discontinued in 2010 and it was administratively dissolved in September 2012. Revenue from Texas was never material and a separate presentation of discontinued operations has not been provided. SleepHealth Partners, LLC and Children’s Sleep Centers, Inc. had no activity during 2010 when both entities were administratively dissolved.

 

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures.  Although these estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future, actual results could differ from these estimates. Examples include allowance for uncollectible accounts, lives assigned to property and equipment and estimates of accrued expenses.

 

Accounts Receivable

Accounts receivable are stated at the amount management expects to collect from its customers.  Management provides for uncollectible amounts through a charge to earnings and a credit to an allowance for doubtful accounts based upon its assessment of the current status of individual accounts.  Balances that are still outstanding after management has performed reasonable collection efforts are written off through a charge to the allowance and a credit to accounts receivable.  As of December 31, 2011 and 2010, the Company has provided for uncollectible amounts of $10,830 and $20,697, respectively.  Management grants credit to customers without requiring collateral.  The amount of accounting loss for which the Company is at risk in these unsecured accounts receivable is limited to their carrying value.

 

Property and Equipment

Property and equipment is stated at cost.  Depreciation is provided by the use of the straight-line and accelerated methods for financial and tax reporting purposes, respectively, over the estimated useful lives of the assets, generally 5 years for equipment and 7 years for furniture and fixtures.

 

Property and equipment is evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, an impairment loss is recognized in the amount that the carrying amount of the asset exceeds its fair value.  Fair value is determined based on discounted future net cash flows associated with the use of the asset.

 

 

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash, accounts receivable, accounts payable, accrued expenses, lines of credit, equipment loans, member advances, and non-controlling interest notes payable.  The carrying values of all the Company’s financial instruments approximate fair value because of their short maturities. In addition to the short maturities, the carrying amounts of our lines of credit and equipment loans approximate fair value because the interest rates approximate market interest rates for the respective borrowings.

 

Income Taxes

The Company operates as a limited liability company (“LLC”). As such, the net income or loss from the Company flows through to the members and they are taxed on their proportionate share of the LLC’s taxable income. Therefore, no provision or liability for federal or state income taxes related to the LLC is included in these consolidated financial statements.

 

Tax benefits arising from an uncertain tax position can only be recognized for financial reporting purposes if, and to the extent that, the position is more likely than not to be sustained in an audit by the applicable taxing authority.  There were no material unrecognized tax benefits and related tax liabilities at December 31, 2011 and 2010. Penalties related to uncertain tax positions would be recorded as a component of general and administrative expenses. Interest relating to uncertain tax positions would be recorded as a component of interest expense. The Company is no longer subject to income tax examinations for calendar years prior to 2008.

 

Revenue

Revenue is attributable to fees for providing services, primarily sleep disorder testing, therapeutic titrations and clinical management. Most agreements include a fee per patient and type of study performed. The agreements may also include a fixed monthly fee for equipment. Fees associated with services are recognized in the period services are rendered and earned under service arrangements with clients where service fees are fixed or determinable and collectability is reasonably assured. Service fees are determined based on written price quotations or service agreements having stipulated terms and conditions that do not require management to make any significant judgments or assumptions regarding any potential uncertainties.

 

Cost of Revenue

Cost of revenue consists primarily of personnel and medical supplies costs incurred in the delivery of the service.

 

NOTE 2 – LIQUIDITY AND GOING CONCERN

 

The Company's consolidated financial statements are prepared using the accrual method of accounting in accordance with accounting principles generally accepted in the United States of America and have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business.  However, the Company incurred losses during the years ended December 31, 2011 and 2010.  At December 31, 2011, the Company had cash of $22,024 and a deficit in working capital of $89,342.  Further, at December 31, 2011, the member’s deficit amounted to $13,596.  As a result of the Company's history of losses and financial condition, there is substantial doubt about the ability of the Company to continue as a going concern.

 

A successful transition to attaining profitable operations is dependent upon obtaining sufficient financing to fund the Company’s planned expenses and achieving a level of revenue adequate to support the Company’s cost structure.  Management plans to finance future operations through the use of cash on hand and increased revenue.

 

There can be no assurances that the Company will be able to achieve its future projected level of revenues.  If the Company is unable to achieve its projected revenue and is not able to obtain alternate additional financing of equity or debt, the Company would need to reorient its operations, which could have a material adverse effect on the Company’s ability to achieve its business objectives.  The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts classified as liabilities.

 

 

NOTE 3 – PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following at December 31:

 

		2011				2010
Equipment		$	513,845			$	513,052
Furniture and fixtures			69,243				69,243
			583,088				582,295
Accumulated depreciation			(454,239	)			(371,647	)
		$	128,849			$	210,648

 

Depreciation expense for the years ended December 31, 2011 and 2010 was $82,592 and $118,190, respectively.

 

NOTE 4 – LINES OF CREDIT

 

In July 2007, the Company executed an unsecured line of credit with a principal amount up to $50,000. Interest is computed at the Wall Street Journal prime rate + 1.10% and is payable monthly. Interest paid under this line of credit was $2,370 and $2,318 for the years ended December 31, 2011 and 2010, respectively. The interest rate in 2011 and 2010 was 4.35%. The note is payable upon demand. Balances outstanding were $49,739 and $50,180 at December 31, 2011 and 2010, respectively.

 

There are several other revolving short-term lines of credit with interest rates ranging from 10 to 27%.

 

 

NOTE 5 – NOTES PAYABLE

 

				2011				2010
1)		A $53,000 non-controlling interest note payable to a former business partner, unsecured and non-interest bearing but with imputed interest at the rate of 6% per annum, to be paid in monthly installments of $1,000 each through August 2013.		$	20,784			$	30,351
2)		A $108,000 non-controlling interest note payable to a former business partner, unsecured and non-interest bearing but with imputed interest at the rate of 6% per annum, to be paid in monthly installments of $3,500 each through December 2013.			78,970				-
3)		Equipment loans totaling approximately $163,000, bearing interest in the range of 11.7-12.3% per annum, payment amounts ranging from $349 - $959 per month, payoff dates occurring between 2012 and 2013; secured by related equipment.			64,449				120,661
					164,203				151,012
		Less current portion			109,600				85,568
		Total long-term debt		$	54,603			$	65,444

 

Future maturities of long-term debt are as follows:

 

		Years ended		Amount
		2012		$	109,600
		2013			54,603
				$	164,203

 

NOTE 6 – COMMITMENTS

 

Operating Leases

The Company is obligated under operating leases for its corporate office and a sleep lab located in Monroe, GA expiring in December 2012. During 2011 and 2010, the Company had operating leases for a sleep lab in Macon, GA and one in Columbus, GA. The Macon lease terminated in October 2011 and the Columbus lease terminated in November 2012. The locations are now being leased month-to-month.

 

Aggregate minimum future lease payments are as follows:

 

		Years Ending		Amount
		2012		$	19,947

  

Rent expense approximating $43,000 and $33,000 is included in cost of services for the years ended December 31, 2011 and 2010, respectively. 

 

 

NOTE 7 – MEMBER’S EQUITY

 

On June 15, 2011, Michael Dyer, the member owning 50% of SleepHealth North Carolina, LLC, entered into a purchase agreement (“Agreement”) with the Company to sell his ownership interest. Terms of the Agreement included a non-interest bearing note payable in the amount of $108,000 (Note 5), payable as follows: $3,000 payable on June 10, 2011, and the remaining $105,000 payable over the next 30 consecutive months at $3,500 per month. The amount of the note after discounting for imputed interest was $100,075. The note eliminates the equity interest of Michael Dyer. The difference between the discounted note and the carrying value of the equity interest at the time decreased member’s equity.

 

The purchase of Mr. Dyer’s interest has been accounted for as a change in a noncontrolling interest. No adjustment was made to the carrying amounts of the assets and liabilities of SleepHealth North Carolina, LLC as a result of the acquisition of Mr. Dyer’s interest.

 

NOTE 8 – RELATED PARTY TRANSACTIONS

 

In 2004, Children’s Sleep Centers, Inc. was organized as a Georgia Corporation, 80% owned by the Company and 20% by Michael Hibbard. On March 20, 2009, the Company entered into a purchase agreement to acquire Hibbard’s ownership interest for a $53,000 non-interest-bearing promissory note (Note 5), payable at $1,000 per month, beginning April 15, 2009. An imputed interest rate of 6% was applied to this note. No activity ever occurred in Children’s Sleep Centers, Inc. and on September 6, 2010, it was administratively dissolved.

 

Short-term advances to the Company to fund operations were made by the member in the amounts of $39,000 and $7,500 during 2011 and 2010, respectively. The Company made payments on these advances to the member in the amounts of $29,000 and $23,305 during 2011 and 2010, respectively.

 

NOTE 9 – MAJOR CUSTOMERS AND VENDORS

 

Major customers and vendors are defined as a customer or vendor from which the Company derives at least 10% of its revenues and cost of revenues, respectively.

 

None of the Company’s customers or vendors met the threshold for definition of major customers or major vendors during 2011 or 2010.

 

NOTE 10 – SUBSEQUENT EVENTS

 

The Company evaluated subsequent events through December 14, 2012, when these consolidated financial statements were available to be issued. The Company is not aware of any significant events, other than the event described below that would require disclosure or have a material impact on the consolidated financial statements.

 

On September 13, 2012, the Company entered into an LLC Ownership Interest Purchase Agreement with Vystar Corporation and sold all outstanding membership and ownership interests of the Company for consideration of:

·

$53,734 cash

·

a promissory note in the principal amount of $33,735 payable in 12 equal monthly payments together with interest at an annual rate of 5%

·

636,098 shares of Vystar Corporation Common Stock.

·

In addition, Vystar Corporation agreed to pay an additional $40,993 in the event that SleepHealth’s EBITDA (earnings before interest, taxes, depreciation and amortization) for the year ended December 31, 2012, is equal to or greater than $129,140.

 

 

 

SleepHealth, LLC and Subsidiaries
Consolidated Balance Sheets
June 30,
(unaudited)

 

ASSETS
		2012				2011
CURRENT ASSETS
Cash		$	22,076			$	27,898
Accounts receivable, net of allowance for uncollectible amounts of $49,510 and $20,000 for 2012 and 2011, respectively			169,605				193,544
Prepaid expenses			9,569				19,122
TOTAL CURRENT ASSETS			201,250				240,564
PROPERTY AND EQUIPMENT, NET			139,629				167,233
TOTAL ASSETS		$	340,879			$	407,797
LIABILITIES AND MEMBER'S EQUITY (DEFICIT)
CURRENT LIABILITIES
Lines of credit		$	49,828			$	73,461
Accounts payable			83,691				24,150
Accrued compensation and payroll taxes			85,349				23,831
Current maturities of notes payable			105,143				141,520
Advances from member			34,398				9,209
TOTAL CURRENT LIABILITIES			358,409				272,171
Notes payable, net of current maturities			51,787				69,704
TOTAL LIABILITIES			410,196				341,875
COMMITMENTS AND CONTINGENCIES
MEMBER'S EQUITY (DEFICIT)
Member's equity (deficit)			(69,317	)			65,921
TOTAL MEMBER'S EQUITY (DEFICIT)			(69,317	)			65,921
TOTAL LIABILITIES AND MEMBER'S EQUITY		$	340,879			$	407,797

 

 

SleepHealth, LLC and Subsidiaries

Consolidated Statements of Operations

(unaudited)

 

		Three months ended June 30,								Six months ended June 30,
		2012				2011				2012				2011
REVENUE		$	298,645			$	312,056			$	579,080			$	631,568
COST OF REVENUE			210,663				227,907				415,295				431,243
Gross Profit			87,982				84,149				163,785				200,325
OPERATING EXPENSES
General and administrative			84,881				93,028				210,806				180,353
Total Operating Expenses			84,881				93,028				210,806				180,353
INCOME (LOSS) FROM OPERATIONS			3,101				(8,879	)			(47,021	)			19,972
OTHER INCOME (EXPENSE)
Interest expense			(4,093	)			(1,945	)			(8,463	)			(2,865	)
NET INCOME (LOSS)		$	(992	)		$	(10,824	)		$	(55,484	)		$	17,107

 

 

SleepHealth, LLC and Subsidiaries

Consolidated Statements of Cash Flows

For the Six Months Ended June 30,

(unaudited)

 

		2012				2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income		$	(55,484	)		$	17,107
Adjustment to reconcile net loss to cash used in operating activities
Depreciation			29,176				43,415
Increase (decrease) in working capital items
Accounts receivable			(6,439	)			40,093
Shareholder advances			21,189				6,000
Accounts payable			52,682				(3,766	)
Accrued compensation and expenses			33,238				(15,631	)
Other			(4,386	)			(19,122	)
Net cash provided by operating activities			69,976				68,096
CASH FLOWS FROM INVESTING ACTIVITIES
Cost of equipment			(39,956	)			-
Net cash used in investing activities			(39,956	)			-
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on equipment loans			(7,314	)			(48,995	)
Proceeds from lines of credit			4,583				5,593
Distributions to member			-				(9,985	)
Payments on loan from former non-controlling interest			(27,237	)			(574	)
Net cash used by financing activities			(29,968	)			(53,961	)
NET INCREASE IN CASH			52				14,135
CASH - BEGINNING OF YEAR			22,024				13,763
CASH - END OF PERIOD		$	22,076			$	27,898
Cash paid during the period for interest		$	8,463			$	2,865

 

 

SleepHealth, LLC and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012 and 2011

 

NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

History and Nature of Business

SleepHealth, LLC (the “Company”) was organized in 2002 by Ailene Miller as a limited liability company in the state of Georgia. Ms. Miller is the sole owner of SleepHealth, LLC. The Company provides sleep management services to patients in hospitals and physicians’ offices in the state of Georgia.

 

SleepHealth North Carolina, LLC was organized in 2007 as a limited liability company, also in the state of Georgia, and was owned equally by the Company and Michael Dyer. SleepHealth North Carolina, LLC provides sleep management services to patients in hospitals and physicians’ offices in the states of North Carolina and South Carolina. In June 2011, the Company purchased Mr. Dyer’s ownership interest in SleepHealth North Carolina, LLC (Note 7).

 

Principles of Consolidation

The consolidated financial statements are composed of SleepHealth, LLC, SleepHealth North Carolina, LLC, SleepHealth Texas, LLC, (“Texas”), SleepHealth Partners, LLC and Children’s Sleep Centers, Inc. (collectively “the Company”). All material intercompany transactions have been eliminated. Operations for SleepHealth Texas, LLC were discontinued in 2010 and it was administratively dissolved in September 2012. Revenue from Texas was never material and a separate presentation of discontinued operations has not been provided. SleepHealth Partners, LLC and Children’s Sleep Centers, Inc. had no activity during 2010 when both entities were administratively dissolved.

 

Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles of the United States of America (“GAAP”) for interim financial information in accordance with Securities and Exchange Commission ("SEC") rules and regulations.  Accordingly, certain information and footnotes required by GAAP for complete financial statements may be condensed or omitted.  These interim financial statements should be read in conjunction with our audited financial statements and notes thereto included above.  In the opinion of management, these financial statements contain all adjustments (which comprise only normal and recurring accruals) necessary to present fairly the financial position and results of operations as of and for the three and six month periods ended June 30, 2012 and 2011.

 

These interim consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern. The audit report relating to the Consolidated Financial Statements for the year ended December 31, 2011 and 2010 contain an explanatory paragraph regarding the Company’s ability to continue as a going concern.

 

NOTE 2 – REVENUE

 

Revenue is attributable to fees for providing services, primarily sleep disorder testing, therapeutic titrations and clinical management. Most agreements include a fee per patient and type of study performed. The agreements may also include a fixed monthly fee for equipment. Fees associated with services are recognized in the period services are rendered and earned under service arrangements with clients where service fees are fixed or determinable and collectability is reasonably assured. Service fees are determined based on written price quotations or service agreements having stipulated terms and conditions that do not require management to make any significant judgments or assumptions regarding any potential uncertainties.

 

NOTE 3 – SUBSEQUENT EVENTS

 

The Company evaluated subsequent events through December 14, 2012, when these consolidated financial statements were available to be issued. The Company is not aware of any significant events, other than the event described below that would require disclosure or have a material impact on the consolidated financial statements.

 

 

On September 13, 2012, the Company entered into an LLC Ownership Interest Purchase Agreement with Vystar Corporation and sold all outstanding membership and ownership interests of the Company for consideration of:

·

$53,734 cash

·

a promissory note in the principal amount of $33,735 payable in 12 equal monthly payments together with interest at an annual rate of 5%

·

636,098 shares of Vystar Corporation Common Stock.

·

In addition, Vystar Corporation agreed to pay an additional $40,993 in the event that SleepHealth’s EBITDA (earnings before interest, taxes, depreciation and amortization) for the year ended December 31, 2012, is equal to or greater than $129,140.