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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended September 30, 2012

 

Commission File Number: 333-140322

 

UV FLU TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

 

Nevada   98-0496885
(State or Other Jurisdiction of   (I.R.S. Employer
Incorporation or Organization)   Identification Number)
1694 Falmouth Road, Suite 125
Centerville, Massachusetts 02632-2933
(Address of principal executive offices) (Zip Code)

 

(508) 362-5455
(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

None   None
(Title of each class)   (Name of each exchange on which registered)

 

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.001 par value

(Title of class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

¨ Yes   x No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes   x No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes   o No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K, is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer* ¨ Smaller reporting company x
*(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) ¨ Yes   x No.

 

The aggregate market value of the common stock held by non-affiliates as of September 30, 2012 (the last trading day of the fourth quarter) was $3,280,148 based on the last sale price of common stock sold.

 

As of December 19, 2012, the last practicable date, 52,361,763 shares of the registrant’s Common Stock were outstanding at a par value of $0.001.

 

DOCUMENTS INCORPORATED BY REFERENCE: Exhibits incorporated by reference are referred to under Part IV.

 

 
 

 

TABLE OF CONTENTS

 

    Page
     
PART I    
Item 1.    Business   4
Item 1A. Risk Factors   12
Item 1B.  Unresolved Staff Comments   18
Item 2.    Properties   18
Item 3.    Legal Proceedings   19
Item 4.    Reserved   19
     
PART II    
Item 5.    Market For Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases of Equity Securities   20
Item 6.    Selected Financial Data   20
Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations   20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk   26
Item 8.    Financial Statements and Supplementary Data   26
Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure   26
Item 9A.  Controls and Procedures   27
Item 9B.  Other Information   27
     
PART III    
Item 10.  Directors, Executive Officers and Corporate Governance   27
Item 11.  Executive Compensation   30
Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   32
Item 13.  Certain Relationships and Related Transactions, and Director Independence   33
Item 14.  Principal Accounting Fees and Services   35
     
PART IV    
Item 15.  Exhibits, Financial Statement Schedules   35
                Index to Financial Statements   F-1 to F-15
                Signatures    
                Exhibits    

 

2
 

 

Statement Regarding Forward-Looking Statements

 

The statements contained in this report on Form 10-K that are not purely historical are forward-looking statements within the meaning of applicable securities laws. Forward-looking statements include statements regarding our “expectations,” “anticipation,” “intentions,” “beliefs,” or “strategies” regarding the future, whether or not those words are used. Forward-looking statements also include statements regarding revenue, margins, expenses, and earnings analysis for fiscal 2012, and thereafter; anticipated levels of future revenues and earnings from the operations of UV Flu Technologies, Inc. (the “Company,” “we,” “us,” or “our”); and projected costs and expenses related to our operations, liquidity, capital resources, availability of future equity capital on commercially reasonable terms. All forward-looking statements included in this report are based on information available to us as of the filing date of this report, and we assume no obligation to update any such forward-looking statements. Our actual results could differ materially from the forward-looking statements. Among the factors that could cause actual results to differ materially are the factors discussed in Item 1A. Risk Factors.

 

 

3
 

 

PART I

 

ITEM 1.BUSINESS

 

Background

 

UV Flu Technologies, Inc. (“we”, “us”, “our,” or the “Company”) was organized under the laws of the State of Nevada on April 4, 2006 under the name “Northwest Chariots, Inc.” We were engaged in the business of renting and selling electrically powered human transporters, like electric bicycles, chariots, and quads. Following our fiscal year ended September 30, 2009, we decided to change our product mix to air purification products and to focus on the research, development, manufacturing, and sales of air purification systems and products.

 

In furtherance of our business objectives, on November 12, 2009, we effected a 32-for-1 forward stock split of all our issued and outstanding shares of common stock, and we merged with our wholly-owned subsidiary, UV Flu Technologies, Inc., for the purposes of effecting a name change to “UV Flu Technologies, Inc.”

 

Effective November 15, 2009, we acquired AmAirpure Inc.’s air purification technology, product, inventory, and certain equipment pursuant to an Asset Purchase Agreement with AmAirpure, Inc. We issued 15,000,000 shares of our common stock to shareholders of AmAirpure in connection with the asset acquisition. Additionally, on November 25, 2009, we entered into a Distribution Agreement with Puravair Distributors LLC (“Puravair”) where we appointed Puravair as our exclusive master distributor for our Viratech UV-400 product and our other products for the professional, medical, and commercial markets in the U.S. and Canada. On September 30, 2010, we terminated our Distribution Agreement with Puravair and began adding new distributors, which totaled five as of year- end, 2010. Today the Company has a total of 10 Distributors, including Grainger Industrial Supply, with almost 2000 reps throughout the United States, and Ormed Systems, one of the most renowned medical distributors in India.

 

The latest production runs of our Viratech UV-400 product incorporate our patented UV bacteria killing technology, which has been cleared by the FDA for use as a medical device. In June 2010, we expanded our market reach by introducing the latest generation of our Viratech UV-400 product into the residential and hospitality markets.

 

On October 28, 2010, we entered into a binding letter of intent with The Red Oak Trust (“Red Oak”) (the “LOI”) in connection with our proposed acquisition of one hundred percent (100%) of the issued and outstanding units of RxAir Industries, LLC, a Nevada limited liability company (“RxAir”), which is wholly owned by Red Oak (the “Acquisition”). At the closing of the Acquisition, Rx Air became a wholly-owned subsidiary of the Company. The acquisition closed January 24, 2011.

 

The Company’s sales, although above 2011 levels, are expected to begin increasing significantly in the calendar year 2013, when retail, international, and medical distributors have established their distribution channels, and our factory capacity has been expanded.

 

Our Solution

 

Around the world, there is a growing awareness of the increasingly poor air quality, particularly with the recent outbreak of H1N1 swine flu and other respiratory pathogens. The public has long been aware of the dangers associated with outdoor air pollution, but never before has there been such growing public concern about the quality of indoor air as well. Today’s lifestyles, coupled with modern building construction practices have created significant challenges in maintaining healthy indoor air. Poor indoor air quality has been proven scientifically to cause increased asthma and allergy related symptoms, as well as contribute to the spread of disease. These factors have created a large and growing need for products which will improve indoor air quality in the workplace and at home.

 

We fill the need for improved air purification systems in the workplace and at home with proprietary technology utilizing high-energy ultraviolet radiation (UV) inside a “killing chamber” which destroys airborne bacteria, deactivates allergens, and mold. The product also reduces odors, and the concentrations of Volatile Organic Compounds (VOC’S). We plan to develop and market products, which will improve indoor air quality effectively, efficiently, economically and do so in an environmentally friendly way.

 

Our product safely kills over 99% of airborne bacteria. Extensive independent laboratory testing confirms that this unique technology kills other airborne contaminants as well.

 

4
 

 

Market Overview

 

The market for air purification equipment has been gaining momentum as a result of rising concerns over indoor air quality and increasing health consciousness among consumers. Products within this group that until recently had been viewed as a luxury are now found in an increasing number of homes and commercial workspaces. As a result, the North American air purification equipment market is expected to expand significantly.

 

The U.S. indoor air quality market generated $7.7 billion in 2008, with the equipment segment accounting for $3.6 billion. Continuing media attention given to the health effects of toxic mold, the outbreak of infectious diseases such as swine flu, and the increase in chronic respiratory diseases such as asthma have resulted in new interest in, and attention to, indoor air quality. Building owners and operators are expected to purchase growing quantities of indoor air quality-related equipment in the hope of reducing or eliminating these contaminants from their buildings.

 

Employers have incentive to keep workers healthy. In 2008, 425 million sick days were taken by employees, costing an estimated $60 billion in lost productivity. “Presenteeism,” a new term coined for employees working while unhealthy, is even worse for employers and the healthcare system, costing approximately $160 billion annually in lost productivity. (Kalorama Information, “The Market for Wellness Programs”, September 2009).

 

Increased media attention and growing public concern over pandemics, antibiotic resistant superbugs, asthma, allergies, tuberculosis, Sick Building Syndrome, and toxic mold are spurring governments, employers, and homeowners to take action to safeguard their health. Demand for products that combat the spread of airborne illness is rising exponentially, as starkly highlighted by public reaction to the outbreak of H1N1. The Wall Street Journal reported the pandemic will create a $7 billion windfall for manufacturers of swine flu vaccine this year.Between July and September of 2009, shipments of hand sanitizer rose a remarkable 129%.

 

This heightened awareness has spread to the growing $7.7 billion indoor air quality market, increasing demand for products that improve air quality and remove airborne pathogens in commercial buildings, hospitals, schools and homes. Poor indoor air quality is scientifically proven to cause the spread of infectious disease and increase asthma and allergy symptoms. The Environmental Protection Agency reports the air inside structures, where people now spend approximately 90% of their time, can have contaminated air levels 10 to 100 times worse than EPA guidelines. Studies have shown that indoor air pollution can have direct health links to respiratory issues, pneumonia, sleep disorders, allergies, asthma, diabetes, and even cardiovascular issues.

 

The air cleaner market is very large with multiple levels. It encompasses an extremely wide range of products, designed to improve the quality of indoor air. In order to deal with the increasingly complex issue of indoor air quality, commercial enterprises must often purchase and use multiple solutions in their effort to provide a safe indoor environment. Including the products designed to freshen the air, surface sprays, portable air cleaners, filters for HVAC systems, other “specialty” solutions for the removal of smoke and airborne microorganisms, the total market for air cleaning products tops an estimated $6 billion per year.

 

As summarized below, the commercial market (estimated over $5 billion) for air purification products can be broken into three different target segments: (1) Medical; (2) Hospitality; and (3) Office. A listing of selected market opportunities within each segment can be found below. As awareness of poor indoor air quality and its impact on worker productivity grows, demand for products, which go beyond masking and filtration will continue to grow.

 

Commercial Market

 

Medical   Hospitality   Office
Hospitals   Hotels   Commercial
Nursing Homes   Motels   Small Office
Medical Offices   Inns   Home Office
Dentists   Restaurants   Day Care
Clinics        

 

According to IMR Research, the consumer market is estimated to be in the millions of units and over $1 billion in sales. This market has been growing at an annual rate of 17% since 1992. Products utilizing HEPA or HEPA-type filters dominate the market, representing over two-thirds of unit sales.

 

5
 

 

About 80% of the unit volume sells at prices below $200. These products are typically sold through major mass merchants including home center outlets, specialty catalogs and on the Internet.

 

While representing slightly less than 35% of the unit sales, products retailing over $200 represent more than 50% of the dollar volume. This includes high-end HEPA air cleaners, electrostatic devices, and, previously, ozone generators. In addition to traditional retail outlets handling upper end products, they can also be found in specialty catalogs and sold on a direct-to-consumer basis. With the recent disappearance of a company that held a large market share in this sector of the market, a significant and growing market exists for premium price air cleaners.

 

Consumer and Sleep Market

 

Products utilizing filters (standard and HEPA) dominate the consumer market. Electrostatic products are starting to appear in a portable form. There are currently only two major brands in this market sector, so there is also a growing opportunity and demand for us to develop consumer targeted indoor air quality products.

 

Recent Clinical studies have shown that the biggest environmental factor affecting sleep related problems is Indoor Air Pollution. The Viratech UV-400 treats all forms of Indoor Air Pollution, and customers have raved about the device’s ability to significantly improve their quality of sleep. As further studies have shown that sleep disorders may be the “Smoking Gun” of health problems, significantly raising the risk of cancer, stroke, diabetes depression and obesity, our units ability to improve the quality and duration of sleep should give the Company distinct marketing advantages in gaining market share in the $25 billion market for sleep-related products. To this end, the Company has already begun distributing the Viratech UV-400 to 20 furniture stores, and recently signed an additional furniture coalition of an additional 400 stores.

 

Scientific Overview

 

We develop highly innovative germicidal air purification technology that disinfects indoor air by deactivating allergens and killing airborne pathogens including bacteria, viruses, and mold. Our flagship product, the ViraTech UV-400, utilizes high-intensity germicidal ultraviolet radiation (UV-C) inside a killing chamber that goes beyond filtering to trap and destroy harmful microbes. Extensive independent testing by EPA and FDA certified laboratories confirms the proprietary system captures and kills airborne bacteria, including Bacillus subtilis, Pseudomonas aeruginosa, and Staphylococcus aureus, at rates exceeding 99.2% on a first-pass basis. We recently concluded independent EPA/FDA certified laboratory tests, showing the rates of inactivation of a MS-2 virus surrogate were almost identical to our results on the inactivation of bacteria.

 

We combine our air purification technology (see diagram below), a sophisticated electronic ballast system with an electronic control module in a product which is totally effective yet user-friendly. The technology uses Ultraviolet C (UVC) in a proprietary, replaceable cartridge which provides 12 months of continuous operation, 24 hours a day, seven days a week. Inside the cartridge, pathogens and bacteria and, in fact, anything with a DNA is killed or neutralized. A gross particulate screen removes the remaining debris from the air stream. This sealed cartridge can be discarded in the regular trash at the end of its useful life.

 

During the actual purification process, air enters through the base of the purifier. A quiet fan, mounted at the unit’s lower end, pushes incoming contaminated air into the bottom of the replaceable cartridge. Inside, the air flows through the first of two inline baffle sets. The chamber, created by these baffles, slows the airflow and provides turbulence necessary for proper elimination of impurities. Next, the air stream enters the main chamber. Here, impurities in the air are bombarded with germicidal UVC, killing the bacteria and neutralizing the impurities. The interior of the kill chamber is coated with TiO2, which then reduces the concentrations of odors and Volatile Organic Compounds (VOC’s), by reacting with the gases that make contact with the interior surface of the chamber, thus breaking them down to the molecular level. After purification in the main chamber, the air stream passes through a second set of inline baffles, which refocuses the flow. It then exits the unit through a gross particulate screen. This screen removes neutralized pathogens and other particles left in the air stream. The final air stream contains only purified air.

 

6
 

 

 

Electronic controls insure that our product is completely effective during the life of the cartridge, allows performance monitoring of all major electrical components, simplifies operation and endows the units with appropriate safety features. An indicator light provides information regarding the state of the cartridge and indicates when a replacement is necessary.

 

Product

 

The ViraTech UV-400

 

The ViraTech UV-400 will be the lead product we produce and distribute. The ViraTech UV-400 portable model is 32 inches tall and uses a 6 inch diameter cartridge. The second product currently being designed is approximately 1/3 smaller and will use a 4.5 inch diameter cartridge (see rendering below). For the U.S. market, all portable models operate on 110/120 volt current and do not require any special wiring. In each product family, there is a design provision for 220/240 volt operation, which allows for adaptation to international standards or use in heavy-duty commercial applications. Each unit is designed to run continuously and will have a minimum active life of 5 years. Cartridge replacement is signaled when as the 9000 lamp hour mark approaches a green light on the front of the unit turns red, and when the useful life is hit, the unit shuts down until the cartridge is replaced. This ensures that the unit maintains adequate germicidal UV strength. Recommended replacement frequency assumes 24 hour per day, seven days a week usage. Because the units run with less resistance than traditional HEPA air filters, the fan is smaller, which results in a quieter product. Depending on room size, each unit will recycle air in a room at the rate of 5 to 10 times per hour.

 

Large and Small Portable Units

 

The Company has designed a revolutionary smaller unit, specifically for the residential marketplace. The unit will be approximately 27” high, and will combine the Company’s patented UV killing chamber technology with state of the art HEPA filter technology. Thus, the unit will “Kill and Trap.” The unit will be designed to be sold at a lower price point and will have independent EPA/FDA certified lab results to support every claim. The unit includes a molded handle and an aesthetically pleasing design, which will make it desirable for homes, hotel rooms, and offices. The Company has already been in contact with noted Allergy Specialists that are interested to get prototypes. The product will be sold on infomercials and through the Company’s other distribution channels. The product will be sold at a similar price point to the Sharper Image ‘Ion Breeze,” which sold almost 3 million units.

 

7
 

 

 

RX Air Product Line

 

On January 24, 2011, UV Flu Technology bought all of the inventory, assets, patents and trademarks of Rx Air, a 15 year old company based in Dallas, Texas, which manufactures a line of some of the world’s best HEPA based air purifiers. The Company’s product lines include:

 

RX-3000: The Rx-3000 is a hospital-grade HEPA air filter, which is used in almost 500 hospitals worldwide. It employs a patented 5-stage HEPA filtration design, germicidal UV irradiation system, with easy portability. It was co-designed with Bio-engineers from the Baylor Medical System, and is FDA cleared as a Class II Medical Device. It can cover spaces up to 1500 sq. ft, and can capture 99.999% of all airborne contaminants. The Company makes all its HEPA filters, which are among the finest in the world, and has Negative-Pressure attachments for hospitals that require Negative-Pressure.

 

CR-3000: Construction Grade version of the RX-3000

 

RX-4000 Prototype, metal cabinet wall-mounted commercial version of the RX-3000

 

RX-4500: Large commercial version of the RX-3000, which can cover hospital and casino spaces up to 10,000 sq. ft.

 

RX-6500: Bio-terrorism version of the above unit.

 

RX Air Plus: Unique system which combines 2 FDA cleared medical devices, the RX-3000, and two Viratech UV-400’s, to form the world’s most cost-effective air filtration system. Covers spaces up to 2,000 sq. ft. and removes 99.999% of all airborne contaminants, while killing 99.3% of all organic airborne contaminants, such as bacteria.

 

Customers

 

We currently have units in operation in a large number of hotels around the United States. Our units are also in numerous hair and nail salons, pet kennels, test labs, and over 500 hospitals worldwide, including the Baylor Healthcare System, Kaiser Permanente, the George Washington University Hospital, Providence Medical Center, and the University Medical Center. The Company’s products are in a number of restaurants, casinos, and military installations, as well.

 

Competition

 

Awareness of the effects of poor indoor air quality continues to grow and will push customers to look for more efficacious products. We believe that companies currently supplying air purification products to commercial accounts will be looking for additional products to sell and new sources of on-going revenue. We believe our ViraTech UV-400 product represents a significant opportunity to distributors for first sales as well as the on-going replacement cartridge sales volume into a growing installed user base.

 

8
 

 

Our products compete broadly with other current companies offering air purification products, including companies that offer UV air purification products. Honeywell was one of the best-known brand names in the commercial segment of the market. 3M Corporation purchased the commercial air treatment division of Honeywell and now markets their product line. In the consumer market segment, we compete with Honeywell, IQ Air, Duracraft, and Enviracaire brands, all of which compete at the middle and upper-middle price points with HEPA-based products and are offered by Kaz, Incorporated. Kaz purchased Honeywell’s consumer products division and continues to market product under the existing brand names along with a wide variety of other brands. Recently, Alpine Industries left the consumer segment of the market, leaving an opening for new and existing companies to assume Alpine’s market share. Hunter and Blue Air also make competing products.

 

These products are in direct competition with our products for market share. We have made comparisons of competitive air masking and filtration products to determine the extent to which these competitive products achieve their advertising claims. We believe we are one of the few companies that publish laboratory reports of our products performance capabilities. Based upon these comparisons, we do not believe there is any existing product which can provide safe, effective operation and still deliver high levels of purification against four forms of airborne contaminants (molds, spores, viruses, and bacteria). At one end of the product spectrum, the market includes the replaceable air freshening devices found in restrooms that are intended to mask lavatory and other odors. While masking odors, these products are not capable of attacking the source of the odor. The products also require frequent and costly replacement.

 

The predominant middle market air cleansing product forms are HEPA type air cleaners and filtration devices built into HVAC systems. Filtration products have some effectiveness against airborne particulates, but they do little to combat odors or pollutants like smoke, bacteria and viruses. Many of these filtering systems are out-of-date. They all require regular filter replacement and maintenance, which ultimately impacts their level of effectiveness. Changing the filter requires wearing protective clothing and a breathing device. Filters connected to central HVAC systems represent significant sales potential and costs to customers because of the sizable installed base of such systems.

 

At the high end of the spectrum are custom-designed air purification devices, which include large freestanding germicidal UV or ozone generating machines. These machines, which represent a very small portion of the market, are expensive (from $1,000 to $10,000 per unit). Since design and technology of custom units exposes the environment to the UV radiation or ozone, to be effective either (1) they require evacuation of a room or house to run safely at high concentrations of ozone or risk of eye damage to the UV lamp or (2) their performance against airborne contaminants is relatively poor.

 

Research and Development

 

Our research and development activities are focused principally on the development of new products that serve the air purification market and on significant upgrades to our existing products. We have completed the design of our second product, a smaller, lower cost version of the ViraTech UV-400. We expect to begin shipping the new model into commercial accounts before year-end 2013. We have also developed a metal, wall mounted commercial version of the RX-3000, called the RX-4000, for International and Commercial markets, where floor space is at a premium.

 

9
 

 

Manufacturing

 

Our manufacturing strategy is to utilize high quality, low cost contract manufacturers to provide the routine production of our products. We will outsource the manufacture of the majority of our products. We are currently looking at options for expanding our current production capacity.

 

Quality Control

 

Our quality strategy emphasizes rigorous internal and independent laboratory testing to maintain the highest levels of quality control for our products. To insure that the proper style and feature set were identified, a number of potential design combinations were developed. These initial designs were presented to consumers in special triad focus group session and played a major role in selection of the final design. These groups also helped to identify the message, which will be used when we begin our public relations and consumer advertising programs.

 

In order to eliminate any potential product liability issues, extensive testing has been done with existing prototypes. This testing confirms that all products meet worldwide electrical and safety standards. Separately, each electrical component to be used will be certified by its manufacturer as meeting ETL and/or UL standards.

 

Our quality system has been created to be harmonized with national and international standards and is focused to ensure it is appropriate for the specific devices we manufacture. Our corporate quality policies govern the methods used in, and the facilities and controls used for, the design, manufacture, packaging, labeling, storage, installation, and servicing of all finished devices intended for human use. These requirements are intended to ensure that finished devices will be safe and effective and otherwise in compliance with the Federal Food, Drug, and Cosmetic Act and other governmental agencies.

 

In order to validate the efficacy of our technology, we conducted numerous tests at independent, FDA certified laboratories between 1996 and 2007. We will continue to conduct similar tests in the future.

 

Independent EPA and FDA certified laboratory testing (results below) confirms the system captures and kills airborne bacteria, including Bacillus subtilis, Pseudomonas aeruginosa, and Staphylococcus aureus. The Company recently announced that additional testing was performed at the same certified test facility showing rates of inactivation for a MS-2 virus surrogate comparable to the results shown with bacteria.

 

NorthEast Laboratories Test Results on the ViraTech UV-400 Unit

 

Microbe  

Population

Before

 

Population

After

 

Inactivation

%

 

Average

%

 

k

cm2/μW

-s

 

Effective

Dose μW-

s/cm2

Bacillus subtilis   420   <1   99.76   99.71   0.001686   3583
    300   <1   99.67           3383
Pseudomonas   8370   29   99.65   99.72   0.002375   2385
Aeruginosa   140,000   300   99.79           2588
Klebsiella pneumoniae   19,000   79   99.58   99.10   0.000548   10005
    20,360   280   98.62           7822
Staphylococcus aureus   600   7   98.83   99.30   0.003475   1281
    16,000   36   99.78           1754
Effective Mean UV Dose                       4100
UVGI Rating Value (URV)                       15

 

Note: Results for Bacillus represent a minimum.

Source: Northeast Laboratories, Inc. 129 Mill Street Berlin, CT 06037

 

10
 

 

Regulation

 

Our products are subject to regulation by numerous government agencies, including the FDA and comparable foreign agencies. To varying degrees, each of these agencies requires us to comply with laws and regulations governing the development, testing, manufacturing, labeling, marketing, distribution, installation and servicing of our research, investigational, and commercially-distributed medical devices. These international, national, state, and local agencies set the legal requirements for ensuring our products are safe and effective. Virtually every activity associated with the manufacture and sale of our products are scrutinized on a defined basis and failure to implement and maintain a quality management system could subject us to civil and criminal penalties.

 

Our ViraTech UV-400 product was issued by the FDA as a Class II medical device in November 2008. FDA clearance to sell our product as a Class II medical device provides invaluable credibility in the marketplace. By granting a listing, the FDA indicates it has reviewed all aspects of a product, including efficacy of the technology, independent test results and product safety to insure that the product complies with our claims. Few air purification products are listed by the FDA, and it is extremely important that we expend the resources necessary to maintain this listing as a Class II medical device with the FDA. The Company has recently concluded independent lab tests, which show the rates of inactivation on a MS-2 virus surrogate were comparable to the results shown with bacteria. Although the Company makes no claims for the inactivation of viruses, it plans on submitting the results for further FDA evaluation.

 

Because Class II devices have a lower potential safety risk to the patient, user, or caregiver, a full premarket analysis are not required for a Class II device. A premarket notification, known as a 510(k) submission, is required to demonstrate that the device is as safe and effective as a substantially equivalent medical device that has been legally marketed in the U.S. prior to May 29, 1976. Once the FDA has notified us that the product file has been cleared, the medical device may be marketed and distributed in the U.S. Some products that have minimal risk to the intended user are deemed by the FDA as exempt from the FDA approval or clearance process.

 

Failure to comply with applicable FDA requirements can result in fines, injunctions, civil penalties, recall, or seizure of products, total or partial suspension of production, or loss of distribution rights. It may also include the refusal of the FDA to grant approval of a PMA or clearance of a 510(k). Actions by the FDA may also include withdrawal of marketing clearances and possibly criminal prosecution. Such actions, if taken by the FDA, could have a material adverse effect on our business, financial condition, and results of operation.

 

Internationally, we will be required to comply with a multitude of other regulatory requirements similar to those of the FDA before we are legally able to market and sell our products in such international markets.

 

Environmental Laws

 

We do not manufacture the products that we sell and are therefore not subject to environmental laws that regulate the manufacture of products. The plants that manufacture our products may be subject to environmental regulations and will have to comply with such regulations in order to deliver marketable products to us. We may be required to comply with national and international environmental regulations related to shipping, storage and disposal of our products, and our quality management system will ensure that we are in compliance with all relevant environmental laws.

 

Patents and Proprietary Rights

 

We own the rights to U.S. Patent No. 6939397 with 43 claims covering innovative removable cartridge, housing, UV chamber, UV radiation source, and baffle technology. We also, through our RX Air subsidiary, own the rights to U.S. Patent No. 3837700, which covers air cleaning units containing an air filter, UV lights, and a photocatalytic filter. We also own a number of trademarks.

 

While a patent has been issued, we realize that (a) we will benefit from patents issued only if we are able to market our products in sufficient quantities of which there is no assurance; (b) substitutes for these patented items, if not already in existence, may be developed; (c) the granting of a patent is not a determination of the validity of a patent, such validity can be attacked in litigation or we or owner of the patent may be forced to institute legal proceedings to enforce validity; and (d) the costs of such litigation, if any, could be substantial and could adversely affect us.

 

11
 

 

Backlog

 

We currently have no backlog of orders.

 

Employees

 

As of September 30, 2012, we had three, full-time employees, and 2 part-time employees, although we engage contractors as needed, and each of our officers and directors devotes a portion of his and her time to the affairs of our Company.

 

Where you can find more information

 

We are required to file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and other information with the Securities and Exchange Commission (the “SEC”). The public can obtain copies of these materials by visiting the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549, by calling the SEC at 1-800-732-0330, or by accessing the SEC’s website at http://www.sec.gov. In addition, as soon as reasonably practicable after these materials are filed with or furnished to the SEC, we will make copies available to the public free of charge through our website, http://www.uvflutech.com. The information on our website is not incorporated into, and is not part of, this annual report.

 

ITEM 1A.   RISK FACTORS

 

With the exception of historical facts stated herein, the matters discussed in this report on Form 10-K are “forward looking” statements that involve risks and uncertainties that could cause actual results to differ materially from projected results. Such “forward looking” statements include, but are not necessarily limited to statements regarding anticipated levels of future revenues and earnings from the operations of the Company, projected costs and expenses related to our operations, liquidity, capital resources, and availability of future equity capital on commercially reasonable terms. Factors that could cause actual results to differ materially are discussed below. We disclaim any intent or obligation to publicly update these “forward looking” statements, whether as a result of new information, future events, or otherwise.

 

An investment in our common stock is subject to risks inherent to our business. The material risks and uncertainties that management believes affect us are described below. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included or incorporated by reference in this report. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair our business operations. This report is qualified in its entirety by these risk factors.

 

If any of the following risks actually occur, our financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of our common stock could decline significantly, and you could lose all or part of your investment.

 

Our limited operating history may not serve as an adequate basis to judge our future prospects and results of operations.

 

We have a limited operating history. As such, our historical operating results may not provide a meaningful basis for evaluating our business, financial performance and prospects. Accordingly, you should not rely on our results of operations for any prior periods as an indication of our future performance. Our operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. If our business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment in our company.

 

We cannot accurately predict future revenues or profitability in the emerging market for air purifiers.

 

The market for ultra violet indoor air purifiers is rapidly evolving. As is typical for a rapidly evolving industry, demand and market acceptance for recently introduced products are subject to a high level of uncertainty. Moreover, since the market for our products is evolving, it is difficult to predict the future growth rate, if any, and size of this market.

 

12
 

 

Because of our lack of an operating history and the emerging nature of the markets in which we compete, we are is unable to accurately forecast our revenues or our profitability. The market for our products and the long-term acceptance of our products are uncertain, and our ability to attract and retain qualified personnel with industry expertise, particularly sales and marketing personnel, is uncertain. To the extent we are unsuccessful in increasing revenues, we may be required to appropriately adjust spending to compensate for any unexpected revenue shortfall, or to reduce our operating expenses, causing us to forego potential revenue generating activities, either of which could have a material adverse effect on our business, results of operations and financial condition.

 

We have incurred losses in prior periods and may incur losses in the future.

 

We incurred net losses of $821,681 for our fiscal year ended September 30, 2012. As of September 30, 2012, we had an accumulated deficit of $2,365,766. We have not achieved profitability in any period, and we expect to continue to incur net losses for the foreseeable future. Should we continue to incur net losses in future periods, we may not be able to increase the number of employees or our investment in capital equipment, sales and marketing programs and research and development in accordance with present plans. Continuation of net losses may also require us to secure additional financing sooner than expected. Such financing may not be available in sufficient amounts, or on terms acceptable to us and may dilute existing shareholders.

 

We will require additional capital in the future in order to maintain and expand our operations. Failure to obtain required capital would adversely affect our business.

 

Until such time as we become profitable, we will be required to obtain additional financing or capital investments in order to maintain and expand our operations and take advantage of future business opportunities. Obtaining additional financing will be subject to, among other factors, market conditions, industry trends, investor sentiment and investor acceptance of our business plan and management. These factors may make the timing, amount, terms and conditions of additional financing unattractive or unavailable to us. There are no assurances that we will be able to raise cash from equity or debt financing efforts or that, even if raised, such cash would be sufficient to satisfy our anticipated capital requirements. Further, there is no assurance concerning the terms on which such capital might be available. Failure to obtain financing sufficient to meet our anticipated capital requirements could have a material adverse effect on our business, operating results and financial condition.

 

If our products do not achieve greater market acceptance, or if alternative brands are developed and gain market traction, our business would be adversely affected.

 

Our success is dependent upon the successful development and marketing of our products. Our future success depends on increased market acceptance of our air purifier product lines. The air purification community may not embrace our product line. Acceptance of our products will depend on several factors, including cost, product effectiveness, convenience, strategic partnerships and reliability. We also cannot be sure that our business model will gain wide acceptance among retailers or the air purifier community. If the market fails to continue to develop, or develops more slowly than we expect, our business, results of operations and financial condition will be adversely affected. Moreover, if new air purifier brands are developed, our prospective products and current technologies could become less competitive or obsolete. Any of these factors could have a material and adverse impact on our growth and profitability.

 

The markets in which we operate are very competitive, and many of our competitors and potential competitors are larger, more established and better capitalized than we are.

 

Although air purification technology is a rapidly emerging technology, the market for these products is highly competitive and we expect that competition will continue to intensify. Our products compete broadly with other current companies offering air purification technology, including companies that offer UV air purification technology, such as 3M Corporation and Sears. These products compete directly with the products offered by us.

 

Many competitors have longer operating histories, larger customer bases, and greater financial, research and development, technical, marketing and sales, and personnel resources than we have. Given their capital resources, the larger companies with whom we compete or may compete in the future, are in a better position to substantially increase their manufacturing capacity, research and development efforts or to withstand any significant reduction in orders by customers in our markets. Such larger companies typically have broader and more diverse product lines and market focus and thus are not as susceptible to downturns in a particular market. In addition, some of our competitors have been in operation much longer than we have been and therefore may have more longstanding and established relationships with current and potential customers.

 

13
 

 

Because we are small and do not have much capital, we must limit our activities. Our relative lack of capital and resources will adversely affect our ability to compete with large entities that market air purifier products. We compete against other air purifier manufacturers and retailers, some of which sell their products globally, and some of these providers have considerably greater resources and abilities than we have. These competitors may have greater marketing and sales capacity, established sales and distribution networks, significant goodwill and global name recognition. Furthermore, it may become necessary for us to reduce our prices in response to competition. A reduction in prices of our products could adversely affect our revenues and profitability.

 

In addition, other entities not currently offering products similar to us may enter the market. Any delays in the general market acceptance of our products may harm our competitive position. Any such delay would allow our competitors additional time to improve their service or product offerings, and provide time for new competitors to develop. Increased competition may result in pricing pressures, reduced operating margins and loss of market share, which could have an adverse effect on our business, operating results and financial condition.

 

Inability of our officers and directors to manage the growth of the business may limit our success.

 

We expect to grow as we execute or business strategy. Rapid growth would place a significant strain on our management and operational resources. In addition, we expect the demands on our infrastructure and technical support resources to grow along with our customer base, and if we are successful in implementing our marketing strategy, it could experience difficulties responding to demand for our products and technical support in a timely manner and in accordance with market expectations. These demands may require the addition of new management personnel or the development of additional expertise by existing management personnel. There can be no assurance that our networks, procedures or controls will be adequate to support our operations or that management will be able to keep pace with such growth. Failure to manage growth effectively could have a material adverse effect on our business, operating results and financial condition.

 

As we expand, management will be faced with new challenges due to increases in operating expenses and risks related to expansion.

 

As our business grows and expands, we will spend substantial financial and other resources on developing and introducing new products and expanding our sales and marketing organization, strategic relationships and operating infrastructure. If our business and revenues grow, we expect that our cost of revenues, sales and marketing expenses, general and administrative expenses, operations and customer support expenses will increase.

 

If we fail to integrate our recent acquisitions with our operations, our business could suffer.

 

We recently acquired air purification technology and products from AmAirpure, Inc., and in the future we may acquire more air purification technologies, businesses or assets. The integration of acquired businesses, technologies or assets requires significant effort and entails risks. We may find it difficult to integrate operations of acquired businesses as personnel may leave and licensees, distributors or suppliers may terminate their arrangements or demand amended terms to these arrangements. Additionally, our management may have their attention diverted while trying to integrate businesses or assets that may be acquired. If we are not able to successfully integrate any businesses or assets that we acquire, we may not realize the anticipated benefits of these acquisitions.  

 

Our success depends on our ability to capitalize on our strategic relationships and partnerships with suppliers, distributors, purchasers and users of our products.

 

We will rely on strategic relationships with third parties to expand our distribution channels and to undertake joint product development and marketing efforts. Our ability to increase sales depends on marketing our products through new and existing strategic relationships. We intend to partner with established existing suppliers and distributors in order to reach target markets such as the medical, healthcare, hospitality, food service and lodging markets. The termination of one or more of our strategic relationships may have a material adverse effect on our business, operating results and financial condition.

 

14
 

 

Our intellectual property may not protect our products, and/or our products may infringe on the intellectual property rights of third parties.

 

We regard our trademarks, trade secrets and similar intellectual property as critical to our success and attempt to protect such property with registered and common law trademarks and copyrights, restrictions on disclosure and other actions to forestall infringement. Despite precautions implemented by us, unauthorized third parties may copy certain portions of our products or reverse engineer or obtain and use information regarded by us as proprietary. We have secured one patent in the United States, have filed an application for an additional patent, and may seek additional patents in the future. We do not know if a patent will issue on the patent application or whether any future patent applications will be issued with the scope of the claims sought by us, or whether any patents received by us will be challenged or invalidated. In addition, many other organizations are engaged in research and product development efforts that may overlap with our products. Such organizations may currently have, or may obtain in the future, legally blocking proprietary rights, including patent rights, in one or more products or methods under development or consideration by us. These rights may prevent us from commercializing products, or may require us to obtain a license from the organizations to use the technology. We may not be able to obtain any such licenses that may be required on reasonable financial terms, if at all, and cannot be sure that the patents underlying any such licenses will be valid or enforceable. The laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the United States. Our means of protecting our proprietary rights in the United States or abroad may not be adequate and competitors may independently develop similar technology and products. Third parties may infringe or misappropriate our copyright, trademarks and similar proprietary rights. In addition, other parties may assert infringement claims against us. We cannot be certain that our products do not infringe issued patents that may relate to our products. We may be subject to legal proceedings and claims from time to time in the ordinary course of business, including claims of alleged infringement of the trademarks and other intellectual property rights of third parties. Intellectual property litigation is expensive and time consuming and may divert management’s attention away from running our business which may have a material adverse effect on our business, operating results and financial condition.

 

The value of our technology may be vulnerable to the discovery of unknown technological defects.

 

Our products depend on complex technology. Complex technology often contains defects, particularly when first introduced or when new versions are released. Although we conduct extensive testing, there is a possibility that technology defects may not be detected until after the product has been released. Although we have not experienced any material technology defects to date, it is possible that despite testing, defects may occur in the products. The defects may result in damage to our reputation or increase costs, cause us to lose revenue or delay market acceptance or divert our development resources, any of which may have a material adverse effect on our business, operating results and financial condition.

 

Government and private insurance plans may not adequately reimburse patients for our products, which could result in reductions in sales or selling prices for our products.

 

Our ability to sell our products will depend in some part on the extent to which reimbursement for the cost of our products will be available from government health administration authorities, private health insurers and other organizations. In November 2008, the U.S. Food and Drug Administration (“FDA”) cleared our ViraTech UV-400 product as a Class II medical device, and we believe that certain purchasers of our product may generally qualify for reimbursement of some of the costs of purchasing our product, subject to the terms and conditions of their insurance plan or Medicare or Medicaid. Third party payers such as insurance companies are increasingly challenging the prices charged for medical products and can, without notice, deny coverage for treatments that may include the use of our products. Therefore, even if a product is cleared for marketing, we cannot be assured that reimbursement will be allowed for the product, that the reimbursement amount will be adequate or, that the reimbursement amount, even if initially adequate, will not subsequently be reduced. Additionally, future legislation or regulations concerning the healthcare industry or third party or governmental coverage and reimbursement, particularly legislation or regulation limiting consumers’ reimbursement rights, may harm our business.

 

As we develop new products, those products will generally not qualify for reimbursement, if at all, until they are cleared for marketing and until they are approved for reimbursement under policies of insurance, Medicare and Medicaid. We do not file claims and bill governmental programs or other third party payers directly for reimbursement for our products. However, we are still subject to laws and regulations relating to governmental reimbursement programs, particularly Medicaid and Medicare.

 

Failure to comply with anti-kickback and fraud regulations could result in substantial penalties and changes in our business operations.

 

The federal Anti-Kickback Law prohibits persons from knowingly and willfully soliciting, receiving, offering or providing remuneration, directly or indirectly, to induce either the referral of an individual, or the furnishing, recommending or arranging for a good or service, for which payment may be made under a federal healthcare program such as the Medicare and Medicaid programs. The U.S. government has interpreted this law broadly to apply to the marketing and sales activities of manufacturers and distributors like us. Many states and other governments have adopted laws similar to the federal Anti-Kickback Law. We are also subject to other federal and state fraud laws applicable to payment from any third party payer. These laws prohibit persons from knowingly and willfully filing false claims or executing a scheme to defraud any healthcare benefit program, including private third party payers. These laws may apply to manufacturers and distributors who provide information on coverage, coding, and reimbursement of their products to persons who do bill third party payers. Any violation of these laws and regulations could result in civil and criminal penalties (including fines), increased legal expenses and exclusions from governmental reimbursement programs, all of which could have a material adverse effect upon our business, financial conditions and results of operations.

 

15
 

 

Complying with Food and Drug Administration, or FDA, and other regulations is an expensive and time-consuming process, and any failure to comply could have a materially adverse effect   on our business, financial condition, or results of operations.

 

Based on the intended use of some of our products, our products can be subject to significant federal government regulation. Those regulations could restrict the sale and/or marketing of some of our products. The manufacture, packaging, labeling, advertising, promotion, distribution, and sale of our anti-microbial products are subject to regulation by federal and state governmental agencies in the United States and other countries, including the FDA and the U.S. Federal Trade Commission (“FTC”). We note that failure to comply with FDA regulations can result in adverse governmental enforcement action including civil and criminal action, injunctions, recalls, seizures and fines. Any action of this type by the FDA may materially adversely affect our ability to market our products.

 

Likewise, failure to comply with FTC rules and standards could result in significant fines, injunctions, cease and desist orders, advertising limitations, and a variety of other enforcement sanctions available to the FTC. FTC would take action if it deemed advertising to be false or misleading. In particular, representations made about our products must be backed by ”competent and reliable scientific evidence” sufficient to support the claims made for the product. FTC would deem the failure of such an advertisement or labeling to be backed by that kind of evidence false FTC and the dissemination of it to be deemed an unfair or deceptive practice. Any enforcement action by the FTC could materially adversely affect our ability to market our products.

 

We cannot predict the nature of any future laws, regulations, interpretations, or applications, nor can we determine what effect additional governmental regulations or administrative orders, when and if promulgated, would have on our business. They could include, however, requirements for the redesign of our products, the recall or discontinuance of certain products, additional record keeping and reporting, expanded documentation of the scientific support or performance of certain products, and/or changes in labels and advertising. Any of these requirements could have a material adverse effect on the company.

 

Product sales, introductions or modifications may be delayed or canceled as a result of FDA regulations or similar foreign regulations, which could cause our sales and profits to decline.

 

Before we can market or sell a new medical device in the United States, we must obtain FDA clearance, which can be a lengthy and time-consuming process and thus very costly. We will have to receive clearance from the FDA to market our products in the United States under Section 510(k) of the Federal Food, Drug, and Cosmetic Act or our products must be found to be exempt from the Section 510(k) clearance process.

 

Any new product introduction or existing product modification could be subjected to a lengthier, more rigorous FDA examination process. For example, in certain cases we may need to conduct clinical trials of a new product before submitting a 510(k) notice. Additionally, we may be required to obtain premarket approvals for our products. The requirements of these more rigorous processes could delay product introductions and increase the costs associated with FDA compliance. Marketing and sale of our products outside the United States are also subject to regulatory clearances and approvals, and if we fail to obtain these regulatory approvals, our sales could suffer.

 

We cannot assure you that any new products we develop will receive required regulatory approvals from U.S. or foreign regulatory agencies.

 

We are subject to substantial regulation related to quality standards applicable to our manufacturing and quality processes. Our failure to comply with these standards could have an adverse effect on our business, financial condition, or results of operations.

 

The FDA regulates the approval, manufacturing, and sales and marketing of our products in the U.S. Although we outsource the manufacture of our products and do not currently manufacture any products currently, our manufacturers may be required to register with the FDA and may be subject to periodic inspection by the FDA for compliance with the FDA’s Quality System Regulation (“QSR”) requirements, which require manufacturers of medical devices to adhere to certain regulations, including testing, quality control and documentation procedures. In addition, the federal Medical Device Reporting regulations require our manufacturers to provide information to the FDA whenever there is evidence that reasonably suggests that a device may have caused or contributed to a death or serious injury or, if a malfunction were to occur, could cause or contribute to a death or serious injury. Compliance with applicable regulatory requirements is subject to continual review and is rigorously monitored through periodic inspections by the FDA. Failure to comply with current governmental regulations and quality assurance guidelines could lead to temporary manufacturing shutdowns, product recalls or related field actions, product shortages or delays in product manufacturing. Efficacy or safety concerns, an increase in trends of adverse events in the marketplace, and/or manufacturing quality issues with respect to our products could lead to product recalls or related field actions, withdrawals, and/or declining sales.

 

16
 

 

Our profitability and success is subject to risks associated with potential general economic downturn.

 

Recently, the general health of the U.S. economy has been relatively weakened substantially, a consequence of which has been declining spending by individuals and companies. To the extent the general economic health of the U.S. continues to decline, or to the extent individuals or companies fear such a decline will continue, such individuals and companies may continue to reduce expenditures such as those for the products offered by us because such products may be considered dispensable items in a recession. A continued decline could delay decisions among certain of our customers to purchase our products or could delay decisions by prospective customers to make initial evaluations of our products. Such delays may have a material adverse effect on our business, operating results and financial condition.

 

A limited public trading market exists for our common stock, which makes it more difficult for our stockholders to sell their common stock in the public markets.

 

Although our common stock is quoted on the OTC Bulletin Board, or OTCBB, under the symbol “UVFT,” there is currently no active public trading market for our common stock. No assurance can be given that an active market will develop or that a stockholder will ever be able to liquidate our shares of common stock without considerable delay, if at all. Many brokerage firms may not be willing to effect transactions in our securities. Furthermore, our future stock price may be impacted by factors that are unrelated or disproportionate to our operating performance. These market fluctuations, as well as general economic, political and market conditions, such as recessions, lack of available credit, interest rates or international currency fluctuations may adversely affect the future market price and liquidity of our common stock.

 

Our common stock may be subject to the penny stock rules which may make it more difficult to sell our common stock.

 

Because our common stock is not listed on any national securities exchange, trading in our common stock is also subject to the regulations regarding trading in “penny stocks,” which are those securities trading for less than $5.00 per share. The following is a list of the general restrictions on the sale of penny stocks:

 

·Before the sale of penny stock by a broker-dealer to a new purchaser, the broker-dealer must determine whether the purchaser is suitable to invest in penny stocks. To make that determination, a broker-dealer must obtain, from a prospective investor, information regarding the purchaser’s financial condition and investment experience and objectives. Subsequently, the broker-dealer must deliver to the purchaser a written statement setting forth the basis of the suitability finding and obtain the purchaser’s signature on such statement.

 

·A broker-dealer must obtain from the purchaser an agreement to purchase the securities. This agreement must be obtained for every purchase until the purchaser becomes an “established customer.” A broker-dealer may not affect a purchase of a penny stock less than two business days after a broker-dealer sends such agreement to the purchaser.

 

·The Securities Exchange Act of 1934, or the Exchange Act, requires that before effecting any transaction in any penny stock, a broker-dealer must provide the purchaser with a “risk disclosure document” that contains, among other things, a description of the penny stock market and how it functions and the risks associated with such investment. These disclosure rules are applicable to both purchases and sales by investors.

 

·A dealer that sells penny stock must send to the purchaser, within ten days after the end of each calendar month, a written account statement including prescribed information relating to the security.

 

These requirements can severely limit the liquidity of securities in the secondary market because few brokers or dealers are likely to be willing to undertake these compliance activities. As a result of our common stock not being listed on a national securities exchange and the rules and restrictions regarding penny stock transactions, an investor’s ability to sell to a third party and our ability to raise additional capital may be limited. We make no guarantee that our market-makers will continue to make a market in our common stock, or that any market for our common stock will continue.

 

17
 

 

We cannot guarantee that investors will be paid any dividends.

 

We have never declared or paid dividends on our common stock. We intend to retain earnings, if any, to support the development of our business and therefore do not anticipate paying cash dividends for the foreseeable future. Payment of future dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including current financial condition, operating results and current and anticipated cash needs.

 

Nevada law and our articles of incorporation authorize us to issue shares of stock, which shares may cause substantial dilution to our existing shareholders and/or have rights and preferences greater than our common stock.

 

Pursuant to our Articles of Incorporation, we have, as of the date of this Report, 75,000,000 shares of common stock authorized. As of the date of this Report, we have 52,361,763 shares of common stock issued and outstanding. As a result, our Board of Directors has the ability to issue a large number of additional shares of common stock without shareholder approval, which if issued could cause substantial dilution to our then shareholders.

 

We are subject to new corporate governance and internal control reporting requirements, and our costs related to compliance with, or our failure to comply with existing and future requirements, could adversely affect our business .

 

We face corporate governance requirements under the Sarbanes-Oxley Act of 2002, as well as new rules and regulations subsequently adopted by the SEC and the Public Company Accounting Oversight Board. These laws, rules and regulations continue to evolve and may become increasingly stringent in the future. We are required to include management’s report on internal controls as part of our annual report pursuant to Section 404 of the Sarbanes-Oxley Act. We strive to continuously evaluate and improve our control structure to help ensure that we comply with Section 404 of the Sarbanes-Oxley Act. The financial cost of compliance with these laws, rules and regulations is expected to remain substantial. We cannot assure you that we will be able to fully comply with these laws, rules and regulations that address corporate governance, internal control reporting and similar matters. Failure to comply with these laws, rules and regulations could materially adversely affect our reputation, financial condition and the value of our securities.

 

If we are unable to successfully recruit qualified and experienced employees and personnel, we may not be able to execute our business plan.

 

Our ability to increase revenues will depend in large part on our ability to successfully recruit, train and retain sales marketing personnel. There can be no assurance that we will be able to find, attract and retain existing employees or that we will be able to find, attract and retain qualified personnel on acceptable terms. Competition for additional qualified personnel is intense and we may not be able to hire or retain personnel with relevant experience. Any delays or difficulties encountered by us in hiring or retaining qualified personnel may adversely affect our business, operating results and financial condition.

 

We are dependent on our key employees.

 

Our success depends to a significant extent upon the continued service of our senior management and key executives, including John J. Lennon, President, CEO and Chief Financial Officer. Our success depends on the skills, experience and performance of senior management and other key personnel, many of whom have also worked together for only a short period of time. We do not have long-term employment agreements with any member of senior management or other key personnel. Our success also depends on our ability to recruit, train or retain qualified personnel. The loss of the services of any of the key members of senior management, other key personnel, or our inability to recruit, train or retain senior management or key personnel may have a material adverse effect on our business, operating results and financial condition. 

 

ITEM 1B.   UNRESOLVED STAFF COMMENTS.

 

None.

 

ITEM 2.     PROPERTIES.

 

We currently maintain our registered offices at 1694 Falmouth Road #125, Centerville, MA 02632-2933, and we have 2 other facilities. Our corporate office is located at 411 Main Street, Bldg. #5, Yarmouth Port, Ma, 02675, and our RX Air Manufacturing facility is located at 3323 Garden Brook Dive, Farmers Branch, TX 75234.

 

18
 

 

ITEM 3.     LEGAL PROCEEDINGS

 

None.

 

ITEM 4.     RESERVED.

 

Not applicable.

 

19
 

 

PART II

 

ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

Market Information

 

Since inception, there has been a limited trading market for our common stock. Our common stock is listed on the OTC Bulletin Board (“OTCBB”) exchange under the symbol UVFT.OB. Our common stock has been listed on the OTCBB since November 12, 2009. Prior to that time, there was no public market for our common stock. The table below lists the high and low closing prices per share of our common stock since our stock was first traded , as quoted on OTCBB.

 

Fiscal 2012  High   Low 
First Quarter  $.19   $.03 
Second Quarter  $.15   $.08 
Third Quarter  $.15   $.08 
Fourth Quarter  $.10   $.04 

 

Trading in our common stock has been sporadic and the quotations set forth above are not necessarily indicative of actual market conditions. All prices reflect inter-dealer prices without retail mark-up, mark-down, or commission and may not necessarily reflect actual transactions.

 

Stockholders

 

As of December 19, 2012, we had 52,361,763 shares of common stock outstanding held by 1189 shareholders.

 

Dividends

 

We have not paid dividends to date and do not anticipate paying any dividends in the foreseeable future. Our Board of Directors intends to follow a policy of retaining earnings, if any, to finance our growth. The declaration and payment of dividends in the future will be determined by our Board of Directors in light of conditions then existing, including our earnings, financial condition, capital requirements and other factors.

 

Securities Authorized For Issuance under Equity Compensation Plans

 

There are no securities authorized for issuance under any equity compensation plans during the fiscal year ended September 30, 2012.

 

Purchases of Equity Securities by the Issuer and Affiliated Purchases

 

There were no issuer purchases of our equity securities during the fiscal year ended September 30, 2012.

 

ITEM 6.SELECTED FINANCIAL DATA

 

As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this item.

 

ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this Report. Forward looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward-looking statements are based upon estimates, forecasts, and assumptions that are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by us, or on our behalf. We disclaim any obligation to update forward-looking statements.

 

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The discussion and financial statements contained herein are for our fiscal year ended September 30, 2012 and September 30, 2011. The following discussion regarding our financial statements should be read in conjunction with our financial statements included herewith.

 

Financial Condition as of September 30, 2012

 

We reported total current assets of $326,200 at September 30, 2012, consisting of accounts receivable, inventory and prepaids. Total current liabilities reported of $151,064 consisted of $54,857 in accounts payable and accrued liabilities and $96,207 in notes payable. We had a working capital $175,136 at September 30, 2012.

 

Net Loss decreased from $849,073 for the year ended September 30, 2011 to $821,681 for the year ended September 30, 2012.

 

We are currently a company focused in the air purification industry, and evaluating opportunities for expansion within that industry through acquisition or other strategic relationships.

 

Plan of Operation

 

Background

 

We were organized under the laws of the State of Nevada on April 4, 2006 under the name “Northwest Chariots, Inc.” and were engaged in the business of renting and selling electrically powered human transporters, like electric bicycles, chariots and quads. Subsequent to our fiscal year ended September 30, 2009, we decided to change our product mix to air purification products and to focus on the research, development, manufacturing and sales of air purification systems and products.

 

In furtherance of our business objectives, on November 12, 2009, we effected a 32-for-1 forward stock split of all our issued and outstanding shares of common stock, and we merged with our wholly-owned subsidiary, UV Flu Technologies, Inc., for the purposes of effecting a name change to “UV Flu Technologies, Inc.”

 

Effective November 15, 2009, we acquired AmAirpure Inc.’s air purification technology, product, inventory, and certain equipment pursuant to an Asset Purchase Agreement with AmAirpure, Inc. We issued 15,000,000 shares of our common stock to shareholders of AmAirpure in connection with the asset acquisition. Additionally, on November 25, 2009, we entered into a Distribution Agreement with Puravair Distributors LLC (“Puravair”) where we appointed Puravair as our exclusive master distributor for our Viratech UV-400 product and our other products for the professional, medical, and commercial markets in the U.S. and Canada. On September 30, 2010, we terminated our Distribution Agreement with Puravair and began adding new distributors, which totaled five as of year end.

 

The latest production runs of our Viratech UV-400 product incorporate our patented UV bacteria killing technology, which has been cleared by the FDA for use as a medical device. In June 2010, we expanded our market reach by introducing the latest generation of our Viratech UV-400 product into the residential and hospitality markets.

 

On October 28, 2010, we entered into a binding letter of intent with The Red Oak Trust (“Red Oak”) (the “LOI”) in connection with our proposed acquisition of one hundred percent (100%) of the issued and outstanding units of RxAir Industries, LLC, a Nevada limited liability company (“RxAir”), which is wholly owned by Red Oak (the “Acquisition”). At the closing of the Acquisition, Rx Air became a wholly-owned subsidiary of the Company. The acquisition was consummated January 24, 2011.

 

We currently have growing, but limited revenues from operations. In order to meet our business objectives, we will need to raise additional funds through equity or convertible debt financing. There can be no assurance that we will be successful in raising additional funds and, if unsuccessful, our plans for expanding operations and business activities may have to be curtailed. Any attempt to raise funds, through debt or equity financing, would likely result in dilution to existing shareholders.

 

Cash and Cash Equivalents

 

As of September 30, 2012, we had cash of $19,941. As such, we anticipate that we will have to raise additional capital through equity financings to fund our operations and execute our business plan during the next 6 to 12 months.

 

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Critical Accounting Policies

 

The preparation of financial statements in conformity with United States generally accepted accounting principles requires management of our company to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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 periods.

 

Our management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. As the number of variables and assumptions affecting the probable future resolution of the uncertainties increase, these judgments become even more subjective and complex. Our significant accounting policies are discussed in Note 3 to our financial statements for the fiscal year ended September 30, 2012 included in the Form 10-K. We have identified the following accounting policies, described below, as the most important to an understanding of our current financial condition and results of operations.

  

This summary of significant accounting policies is presented to assist in understanding our financial statements. Our financial statements and notes are representations of our management who is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles in the United States of America (“GAAP”) and have been consistently applied in the preparation of the financial statements. The financial statements are stated in United States of America dollars.

 

a)Available-for-sale securities

The Company classifies its marketable equity securities as available-for-sale and they are carried at fair market value, with the unrealized gains and losses included in the determination of comprehensive income and reported in stockholders’ equity.

 

b)Income Taxes

We have adopted the ASC subtopic 740-10. ASC 740-10 requires the use of the asset and liability method of accounting of income taxes. Under the asset and liability method of ASC 740-10, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We provide deferred taxes for the estimated future tax effects attributable to temporary differences and carry forwards when realization is more likely than not. See Note 7.

 

c)Inventories

Inventories are stated at the lower of cost or market, with cost being determined using the first-in first-out method. Inventory as of September 30, 2012 consists of $117,904 of finished goods and $15,121 of raw materials for a total inventory of $133,025. Inventory as of September 30, 2011 consisted of $81,145 of finished goods and $33,262 of raw materials for a total inventory of $114,407.

 

d)Property and Equipment

Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The estimated useful lives for significant property and equipment categories are as follows:

 

Equipment 5 years
Furniture 7 years

 

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The Company reviews the carrying value of property, plant, and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition, and other economic factors. Based on this assessment there were no impairments needed as of September 30, 2012 or 2011. Depreciation expense for the years ended September 30, 2012 and 2011 was $1,464 and $670, respectively.

 

e)Advertising

Advertising costs are expensed as in accordance with ASC subtopic 720-35 (formerly SOP 93-7). Advertising costs for the years ended September 30, 2012 and 2011 were $32,332 and $47,256, respectively. These costs were included in general and administrative costs.

 

f)Basic and Diluted Loss Per Share

In accordance with ASC subtopic 260-10, the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. At September 30, 2012 and 2011, we had no stock equivalents that were anti-dilutive and excluded in the earnings per share computation, therefore basic loss per share and diluted loss per share are the same.

 

g)Estimated Fair Value of Financial Instruments

The carrying value of our financial instruments, consisting of cash, accounts receivable, and accounts payable and accrued expenses approximate their fair value as of September 30, 2012 and 2011 due to the short-term maturity of such instruments. It is management’s opinion that we are not exposed to significant interest, currency, or credit risks arising from these financial statements. See Note 8 for further details.

 

h)Revenue Recognition

It is our policy that revenues will be recognized in accordance with ASC subtopic 605-10. Revenues are recognized only when the Company has transferred to the customer the significant risk and rewards of ownership of the goods, title to the products transfers, the amount is fixed and determinable, evidence of an agreement exists, there is reasonable assurance of collection of the sales proceeds, the Company has no future obligations, and the customer bears the risk of loss. This occurs at the time of shipment (FOB shipping point) of the products from the Company’s warehouse and an invoice is prepared.. There are no rights of return and exchange is allowed only on defective products. Recognition of revenue is not affected as the right of exchange results in new units being shipped to the customer once defective units have been received by the company and verified as defective.

 

i)Currency

Our functional currency is the United States Dollar.

 

j)Use of Estimates

The preparation of financial statements in conformity with GAAP 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 amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

k)Cash and Cash Equivalents

Cash is comprised of cash on hand and demand deposits. Cash equivalents include short-term highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. The Company has no cash equivalents as of September 30, 2012 or 2011.

 

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l)Sales Concentrations

25% of our sales for the year ended September 30, 2012 have been accounted for by our three largest customers. They represent 6%, 6% and 13% respectively of our total sales, respectively.

 

44% of our sales for the year ended September 30, 2011 have been accounted for by our three largest customers. They represent 15%, 15% and 14% respectively of our total sales, respectively.

 

m)Impairment of long-lived assets

The Company reviews its long-lived assets and intangibles periodically to determine potential impairment by comparing the carrying value of the long-lived assets with the estimated future cash flows expected to result from the use of the assets, including cash flows from disposition. Should the sum of the expected future cash flows be less than the carrying value, the Company would recognize an impairment loss. An impairment loss would be measured by comparing the amount by which the carrying value exceeds the fair value of the long-lived assets and intangibles. The Company recognized no impairment losses during the year ended September 30, 2012.

 

n)Credit Risks

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. At September 30, 2012 and 2011, the Company had no funds in excess of the FDIC insured limits.

 

o)Reclassifications

Certain reclassifications have been made to the prior years’ financial statements to conform to the current year presentation. These reclassifications had no effect on previously reported results of operations or retained earnings.

 

p)Year-end

The Company has adopted September 30 as its fiscal year end.

 

q)Recent Accounting Pronouncements

The Company has evaluated all new accounting pronouncements as of the date of these financial standards and has determined that none have or will have a material impact on the financial statements or disclosures.

 

Results of Operations

 

The following is Management’s discussion and analysis of certain significant factors which have affected our financial condition and results of operations during the periods included in the accompanying financial statements.

 

Results of Operations for the Year Ended September 30, 2012 as Compared to the Year Ended September 30, 2011

 

Sales and Rental Revenue

  

During the fiscal year ended September 30, 2012, we received gross revenue of $155,871 as compared to $155,749 for the year ended September 30, 2011. The increase is primarily related to the increase in sales from our new product line, reflecting higher market penetration of our product in the commercial market and in particular in the medical and hospitality industries. 25% of our sales for the year ended September 30, 2012 have been accounted for by our three largest customers. They represent 13%, 6%, and 6% respectively of our total sales.

 

44% of our sales for the year ended September 30, 2011 have been accounted for by our three largest customers. They represent 15%, 15% and 14% respectively of our total sales.

 

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Net Income (Loss)

 

During the fiscal year ended September 30, 2012, our net loss was $821,681 as compared to $849,073 for the year ended September 30, 2011. The decrease in net loss is due to a decrease in our total expenses of $849,191 for the year ended September 30, 2012 as compared to $860,349 for the year ended September 30, 2011, as well as an increase in the gain on debt forgiveness of $23,381 and a gain on sale of assets of $3,644 for the year ended September 30, 2012.

 

General and Administrative Expenses

 

During the fiscal year ended September 30, 2012, we incurred total expenses of $849,191 as compared to $860,349 for the year ended September 30, 2011. The decrease is primarily related to expenses for marketing, office and administration, professional fees, consulting and investor relation costs increased due to an increase business activity associated with development of the new product line and impairment expense. The expenses are as follows:

 

   September 30, 2012   September 30, 2011 
Bad debt  $2,262   $9,958 
Depreciation and amortization   1,464    670 
Marketing   43,494    53,573 
Office and administration   250,129    146,328 
Professional fees   323,946    122,112 
Impairment expense   -    245,378 
Consulting   227,896    255,516 
Investor relations   -    26,814 
Total  $849,191   $860,349 

 

Bad debts decreased from $9,958 for the year ended September 30, 2011 to $2,262 for the year ended September 30, 2012.

 

Depreciation and amortization expense increased from $670 for the year ended September 30, 2011 to $1,464 for the year ended September 30, 2012.

 

Marketing expenses decreased from $53,573 to $43,494, as many of the marketing materials were developed in the prior periods. Office and administration and professional fees increased due to RX Air being a part of UV Flu for the full year, and the associated costs for closing out the transaction. Those higher costs were offset from significantly lower expenses associated with impairment, investor relations and consulting.

 

Liquidity and Capital Resources

 

As of September 30, 2012, we had cash of $19,941, and working capital of $175,136. During the period ended September 30, 2012, we funded our operations from receipts of sales revenues, proceeds from stock sales, and proceeds from loans payable. In order to survive, we are dependant on increasing our sales volume. Additionally, we plan to continue to raise additional equity capital, and believe that this will provide sufficient working capital to fund our operations for at least the next 12 months. Changes in our operating plans, increased expenses, additional acquisitions, or other events may cause us to seek additional equity or debt financing in the future.

 

For the period ended September 30, 2012, we used $524,027 in cash flows to fund operating activities as compared to $336,646 for the period ended September 30, 2011. The increase was primarily due to significantly increasing the prepaid expense, and dramatically paying down the level of current liabilities, both of which accounted for a total of $205.069.

 

For the period ended September 30, 2012, cash flows from investing activities was $86,187 due to the sale of assets.

 

For the period ended September 30, 2012, cash flows provided from financing activities was $448,262 from proceeds of loans payable and sale of common shares as compared to $350,150 for the period ended September 30, 2011.

 

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We anticipate that our cash flow will improve as our product shipments ramp up in our second quarter, 2013. Any additional fundings will be equity, or order based, in order to fund the ramp up of existing production, along with the tooling for our new model.

 

Off-Balance Sheet Arrangements

 

We presently do not have any off-balance sheet arrangements.

 

Capital Expenditures

 

We spent $3,985 for the purchase of equipment for the fiscal year ended September 30, 2011 and $457 in the fiscal year ended September 30, 2012.

 

Contractual Obligations

 

The following table outlines payments due under our significant contractual obligations over the periods shown, exclusive of interest:

 

   Payments Due by
Period
 
Contract Obligations
At September 30, 2012
  Total   Less than
1 Year
   1-3 years   3-5 years   More than
5 years
 
Total Debt  $102,331   $96,207   $6,124   $   $ 
Lease Obligations  $11,620   $11,620   $         

 

The above table outlines our obligations as of September 30, 2012 and does not reflect any changes in our obligations that have occurred after that date.  

 

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this item.

 

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Reference is made to the financial statements, the report of our independent registered public accounting firm, and the notes thereto commencing at page F-1 of this report, which financial statements, report, and notes are incorporated herein by reference. .

 

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

On December 21, 2009, Bateman McDuffie, Inc. (formerly known as Bateman & Co., Inc., P.C.) (“Bateman”) was dismissed as our independent registered public accounting firm. Our Board of Directors approved the decision to change our independent registered public accounting firm.

 

During the last two fiscal years ended September 30, 2010 and 2009, and further through the date of dismissal of Bateman, there have been no disagreements with Bateman on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement if not resolved to the satisfaction of Bateman, would have caused them to make reference to the subject matter of the disagreement(s) in connection with their report on our financial statements for such years; and there were no reportable events, as listed in Item 304(a)(1)(iv) of Regulation S-K.

 

On December 21, 2009, we engaged Weaver Martin & Samyn, LLC (“Weaver”) as our new independent registered public accounting firm to audit our financial statements. During the two most recent fiscal years and the interim periods preceding the engagement, we did not consult with Weaver regarding (i) the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, and no written report or oral advice was provided to us by Weaver concluding there was an important factor to be considered by us in reaching a decision as to an accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement, as that term is defined in Item 304 (a)(1)(iv) of Regulation S-K or a reportable event, as that term is described in Item 304 (a)(1)(v) of Regulation S-K.

 

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ITEM 9A.CONTROLS AND PROCEDURES

 

We carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer along with our Principal Financial Officer, of the effectiveness of the design of the our disclosure controls and procedures (as defined by Exchange Act Rule 13a-15(e) and 15d-15(e)) as of the end of our fiscal year pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, our Principal Executive Officer along with our Principal Financial Officer concluded that our disclosure controls and procedures are effective at September 30, 2012 in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of September 30, 2012.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal controls over financial reporting that occurred during the three months ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

ITEM 9B.OTHER INFORMATION.

 

There were no items requiring reporting on Form 8-K that were not reported on Form 8-K during the fourth quarter of the year covered by this Form 10-K.

 

PART III

 

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

Directors and Executive Officers

 

The following table sets forth the names and ages of our current directors and executive officers, the principal offices and positions held by each person:

 

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Person   Age   Position
         
John J. Lennon   57   President, Treasurer, Chief Executive Officer, Chief Financial Officer, and Director
         
Roger Nelson   66   Secretary and Director
         
Dr. Dennis J. Rosen, M.D., FAAP   66   Director
         
Thomas J. Mahowald   57   Director

 

Our Board of Directors believes that its members encompass a range of talent, skill, and experience sufficient to provide sound and prudent guidance with respect to our operations and interests. The information below with respect to our directors includes each director’s experience, qualifications, attributes, and skills that led our Board of Directions to the conclusion that he should serve as a director.

 

John J. Lennon, President, Chief Executive Officer, Chief Financial Officer, and Director. On November 12, 2009, our Board of Directors appointed Mr. John J. Lennon as President, Chief Financial Officer, Treasurer and member of the Board of Directors. From September 2009 to 2010, Mr. Lennon has served as President, Chief Executive Officer, Chief Financial Officer and Secretary of Far East Wind Power.; from May 30, 2008 to July 7, 2009, as Treasurer, VP of Finance and Director of Brite-Strike Tactical Illumination Products, Inc.; from February 2009 to June 2009, as President, Chief Financial Officer and Secretary of American Petro-Hunter, Inc., from June 2009 to 2011, as Chairman, and Chief Financial Officer of American Petro-Hunter, Inc., and from June 2011 to July 2012, as CFO and director of American Petro Hunter. From May 2009 to October 2009, Mr. Lennon was appointed as President, Chief Financial Officer and Secretary of GC China Turbine Corp.; from March 2009 to 2010, as President, Chief Financial Officer and Secretary of LED Power Group, Inc.; as Treasurer/Director/VP of Finance of US Starcom from 2005-2008. From 2004 to the present, Mr. Lennon has been President of Chamberlain Capital Partners, which assists companies in the area of maximizing shareholder value through increased sales, cost reduction and refined business strategy. Mr. Lennon has also assisted companies in obtaining debt financing, private placements or other methods of funding. On December 31, 2007, Mr. Lennon was appointed Chief Executive Officer, President, Chief Financial Officer, Secretary, Treasurer and director of Explortex Energy Inc., a publicly reporting company, which is a natural resource exploration company engaged in the participation in drilling of oil and gas in the United States.  Mr. Lennon resigned from his positions at Explortex Energy Inc. on June 29, 2009. From 1987 to 2004, Mr. Lennon served as Senior Vice President of Janney Montgomery Scott, Osterville, MA, Smith Barney and Prudential Bache Securities, managing financial assets for high net worth individuals.

 

Roger Nelson, Secretary and Director. On January 6, 2010, our Board of Directors appointed Mr. Nelson as Secretary and a member of the Board of Directors. Mr. Nelson brings over 36 years of experience in the medical equipment and health care sector. Since 1996, he was Senior Vice President at Eco-Rx, Inc., a company specializing in the air purification industry. Prior to that, he was the principle of Nelson & Associates, an independent health care sales and consulting organization. From 1980 to 1991, he held senior positions with medical equipment manufacturers Retec, USA and Everest & Jennings. His career in the sector began in 1973 with a lengthy period at several divisions of Johnson & Johnson. Mr. Nelson was educated at the University of Connecticut, with a B.S. in Business Administration received in 1969.

 

Dr. Dennis J. Rosen, M.D., FAAP, Director. On January 6, 2010, our Board of Directors appointed Dr. Rosen as a member of the Board of Directors. Dr. Rosen has practiced medicine as a Developmental Pediatrician since 1975. He is currently teaching at UMASS Medical Center in Worcester and in private practice in Amherst, Massachusetts. He has been the Director of Developmental Clinics in multiple community hospitals in Western Massachusetts since his training at the State University of New York at Buffalo, where he earned his medical degree. Dr. Rosen completed his residency at Boston City Hospital and post-graduate developmental pediatric training at Children’s Hospital Medical Center in Boston in 1976. Dr. Rosen earned his M.D. from the University of New York at Buffalo in 1971 and his Bachelors of Science Degree from the University of Rhode Island in 1967. Dr. Rosen is a nationally known speaker and advisory board member to numerous international pharmaceutical companies.

 

Thomas J. Mahowald, Director. On December 31, 2010, our Board of Directors appointed Mr. Thomas J. Mahowald as a member of the Board of Directors. From 2009 to September, 2011, Mr. Mahowald served as the Vice President, Sales & Marketing of Pike Research Group, a global leader in Cleantech market research. From 2004 to 2008, Mr. Mahowald served as Principal of Encompass Technology Partners, a business development firm specializing in strategic planning and sales strategy, product branding and positioning, merchandising, and global sales channel development, including e-commerce. From 1996 to 2004, Mr. Mahowald served as Vice President of Sales, Major Accounts for International Data Corporation, a global provider of market intelligence, advisory services, and events for the information technology, telecommunications, and consumer technology markets. Prior to 1996, Mr. Mahowald’s served as Vice President, Sales for Studio Solutions, Inc. from 1991 to 1996; Director of International Marketing for Precision Visuals, Inc. from 1983 to 1991; and International Sales Manager for the Satellite Communication Division of Harris Corporation form 1981 to 1983. Mr. Mahowald received his M.B.A in International Management from the Thunderbird School of Global Management in 1981 and his B.S. in Finance and Accounting from the University of Colorado at Boulder in 1977.

 

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Significant Employees

 

As of September 30, 2012, we had 3 full-time employees, and 2 part-time, although we engage contractors as necessary and each of our officers and directors devotes a portion of his and her time to the affairs of our Company.

 

Certain Relationships

 

There are no arrangements, understandings, or family relationships pursuant to which our executive officers or directors were selected. There are no related party transactions between us and our executive officers or directors.

 

Nominations to the Board of Directors

 

Our directors take a critical role in guiding our strategic direction and oversee the management of the Company. Board of Director candidates are considered based upon various criteria, such as their broad-based business and professional skills and experiences, a global business and social perspective, concern for the long-term interests of the stockholders, diversity, and personal integrity and judgment. Accordingly, we seek to attract and retain highly qualified directors.

 

In carrying out its responsibilities, the Board of Directors will consider candidates suggested by stockholders. If a stockholder wishes to formally place a candidate's name in nomination, however, he or she must do so in accordance with the provisions of the Company's Bylaws.

 

Committees of the Board of Directors

 

Audit Committee

 

Our Board of Directors  has not  established  a separate  audit committee within the meaning of Section  3(a)(58)(A) of the Securities  Exchange Act of 1934,  as amended  (the  ”Exchange  Act”). Instead, the entire Board of Directors acts as the audit committee within the meaning of Section 3(a)(58)(B) of the Exchange Act. We are seeking candidates for outside directors to serve on a separate audit committee when we establish one. Due to our small size and limited operations and resources, it has been difficult to recruit outside directors.

 

Audit Committee Financial Expert

 

We currently do not have an audit committee financial expert or an independent audit committee expert on our Board of Directors.

 

Other Committees

 

Our Board of Directors has not established separately-designated standing nominating or compensation committees due to our financial conditions, small size, and limited operations and resources.

 

Code of Ethical Conduct

 

We have adopted a Code of Ethical Conduct applicable to all employees including our principal executive officer and principal financial officer, which is available on our website at http://www.uvflutech.com.

 

Compliance with Section 16(a) of the Securities Exchange Act of 1934

 

Section 16(a) of the Securities and Exchange Act of 1934, as amended, requires any person who is a director or executive officer or who beneficially holds more than ten percent (10%) of any class of our securities which have been registered with the Securities and Exchange Commission, to file reports of initial ownership and changes in ownership with the Securities and Exchange Commission. These persons are also required under the regulations of the Securities and Exchange Commission to furnish us with copies of all Section 16(a) reports they file.

 

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To our knowledge, based solely on our review of the copies of the Section 16(a) reports furnished to us and a review of our shareholders of record for the fiscal year ended September 30, 2012, we believe that each person who, at any time during such fiscal year was a director, officer, or beneficial owner of more than 10% of our common stock, complied with all Section 16(a) filing requirements during such fiscal year except that Mr. John J. Lennon filed one late report on Form 4 relating to the acquisition of shares of our common stock.

 

ITEM 11.EXECUTIVE COMPENSATION

 

General Philosophy

 

Our Board of Directors is responsible for establishing and administering the Company’s executive and director compensation.

 

Executive Compensation

 

The Board of Directors has approved a management fee to Mr. Lennon, our President, Treasurer, Chief Executive Officer, Chief Financial Officer, and Director, in the amount of $1,500 per week.  This weekly fee will pay Mr. Lennon for time in performing administrative, management, and business development functions for us. This fee was determined by our Board of Directors by considering the amount of time Mr. Lennon will provide to the Company and also taking into consideration the financial condition of the Company.

 

30
 

 

Compensation Summary

 

Summary Compensation Table

 

Name and Principal
Position (a)
    Year
(b)
   Salary
($)
(c)
   Bonus
($)
(d)
   Stock
Awards
($)
(e)(2)
   Option
Awards
($)
(f)
   Non
Equity
Incentive
Plan
Compensation
($)
(g)
   Non-qualified
Deferred
Compensation
Earnings
($)
(h)
   All Other
Compensation
($)
(i)
   Total
($)
(j)
 
John J. Lennon,
President, Treasurer, Chief Executive Officer, Chief Financial Officer, and Director
   2012   $51,000   $-0-   $12,500   $-0-    -0-    -0-   $-0-   $63,500 
    2011   $78,000   $-0-   $139,000   $-0-    -0-    -0-   $-0-   $217,000 
    2010   $78,000   $-0-   $-0-   $-0-    -0-    -0-   $-0-   $78,000 
Roger Nelson,
Secretary
   2012   $-0-   $-0-   $10,000   $-0-    -0-    -0-   $-0-   $10,000 
    2011   $-0-   $-0-   $17,000   $-0-    -0-    -0-   $-0-   $17,000 
    2010   $-0-   $-0-   $-0-   $-0-    -0-    -0-   $-0-   $-0- 
Tom Mahowald   2012   $-0-   $-0-   $-0-   $-0-    -0-    -0-   $-0-   $-0- 
    2011   $-0-   $-0-   $7,000   $-0-    -0-    -0-   $-0-   $7,000 
Dennis Rosen   2012   $-0-   $-0-   $7,500   $-0-    -0-    -0-   $-0-   $7,500 
    2011   $-0-   $-0-   $13,000   $-0-    -0-    -0-   $-0-   $13,000 

 

Compensation of Directors

 

We have no standard arrangement to compensate directors for their services in their capacity as directors. Directors are not paid for meetings attended. We do reimburse directors for reasonable expenses incurred during the course of their performance. There has been no compensation awarded to, earned by, or paid to any of our named directors during the last fiscal year.

 

Outstanding Equity Awards at Fiscal 2012 Year-End

 

None of our named executive officers had any outstanding equity awards as of the fiscal year ended September 30, 2012.

 

Option Exercises and Vested Stock in Fiscal 2012

 

None of our named executive officers exercised stock options or had any restricted stock during the fiscal year ended September 30, 2012.

 

31
 

 

Employment and Other Agreements

 

There are no employment agreements with any officers or directors other than the monetary payment to them as more fully described elsewhere in this Form 10-K.

 

Pension and Retirement Plans

 

We do not offer any annuity, pension, or retirement benefits to be paid to any of our officers, directors, or employees in the event of retirement. There are also no compensatory plans or arrangements with respect to any individual named above which results or will result from the resignation, retirement, or any other termination of employment with our company, or from a change in the control of our Company.

 

Risk Management Considerations

 

We believe that our compensation policies and practices for our employees, including our executive officers, do not create risks that are reasonably likely to have a material adverse effect on our Company.

 

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

 

Security Ownership Of Certain Beneficial Owners And Management

 

The following table sets forth, as of  December 19, 2012, the number and percentage of outstanding shares of our common stock owned by (i) each person known to us to beneficially own more than 5% of our outstanding common stock, (ii) each director, (iii) each named executive officer, and (iv) all executive officers and directors as a group. Share ownership is deemed to include all shares that may be acquired through the exercise or conversion of any other security immediately or within the next 60 days. Such shares that may be so acquired are also deemed outstanding for purposes of calculating the percentage of ownership for that individual or any group of which that individual is a member. Unless otherwise indicated, the stockholders listed possess sole voting and investment power with respect to the shares shown.

 

Name and Address of Beneficial Owner
(1)
  Amount and Nature of
Beneficial Ownership (2)
   Percent of Class
of Common Stock
 
         
Directors and Executive Officers          
           
John J. Lennon
PO Box 882
Barnstable, Massachusetts  02630
   5,487,500    10.48%
           
Roger Nelson
103 Lawlor
Tolland CT 06084
   975,000    1.86%
           
Thomas J. Mahowald
1890 Lehigh St.
Boulder, CO 80305
   437,500    0.84%
           
 Dr. Dennis J. Rosen, M.D., FAAP
157 Columbia Dr
Amherst, MA 01002
   555,000    1.06%
           
All directors and executive officers as a group (4 persons)   7,455,000    14.24%
           
5% Stockholders          

 

32
 

 

(1)Unless otherwise noted, the security ownership disclosed in this table is of record and beneficial. Unless provided for otherwise, the address for each of the beneficial owners named below is the Company’s business address.

 

(2)Under Rule 13d-3 under the Exchange Act, shares not outstanding but subject to options, warrants, rights, conversion privileges pursuant to which such shares may be acquired in the next 60 days are deemed to be outstanding for the purpose of computing the percentage of outstanding shares owned by the persons having such rights, but are not deemed outstanding for the purpose of computing the percentage for such other persons.

 

We do not know of any other shareholder who has more than 5 percent of the issued shares.

 

There are no voting trusts or similar arrangements known to us whereby voting power is held by another party not named herein. We know of no trusts, proxies, power of attorney, pooling arrangements, direct or indirect, or any other contract arrangement or device with the purpose or effect of divesting such person or persons of beneficial ownership of our common shares or preventing the vesting of such beneficial ownership.

 

Changes in Control

 

Other than as disclosed elsewhere in this Form 10-K, there are no existing arrangements that may result in a change in control of the Company.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

We do not have any equity compensation plans.

 

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

 

Related Party Transactions

 

During the years ended September 30, 2012 and 2011, the Company paid a Chamberlain Capital Partners, a company owned by the president, for his services and also reimbursed Chamberlain for the President’s health insurance and for miscellaneous office expenses. During the year ended September 30, 2012, the Company paid Chamberlain approximately $51,000 in compensation for the President’s services, and approximately $15,000 in reimbursements for health insurance and miscellaneous office expenses. For the year ended September 30, 2011, the Company paid Chamberlain approximately $23,000 and accrued another $55,000 in compensation for the President’s services, and approximately $15,000 in reimbursements for health insurance and miscellaneous office expenses.

 

During the year ended September 30, 2012, the Company had an accounts payable to Chamberlain in relation to the compensation for the President’s services of $55,500. In October of 2011, the Company satisfied this accounts payable by issuing 1,729,167 shares of common stock to Chamberlain. The common stock was valued at fair market value at the time of the conversion.

 

Review, Approval or Ratification of Transactions with Related Persons

 

Although we adopted a Code of Ethical Conduct on December 10, 2009, we still rely on our board to review related party transactions on an ongoing basis to prevent conflicts of interest. Our board reviews a transaction in light of the affiliations of the director, officer or employee and the affiliations of such person’s immediate family. Transactions are presented to our board for approval before they are entered into or, if this is not possible, for ratification after the transaction has occurred. If our board finds that a conflict of interest exists, then it will determine the appropriate remedial action, if any. Our board approves or ratifies a transaction if it determines that the transaction is consistent with the best interests of the Company. For the above transaction, the board approved and ratified the transaction, finding it in the best interest of the Company.

 

33
 

 

Director Independence

 

During fiscal 2012, our Board of Directors has determined, after considering all the relevant facts and circumstances, that Mr. Roger Nelson, Mr. Thomas J. Mahowald, and Dr. Dennis J. Rosen are independent directors because they have no relationship with us that would interfere with their exercise of independent judgment. Mr. Lennon is not an independent director of our company because of his past or current position as an executive officer of our company. There are no family relationships among any of our directors or officers. We evaluate independence by the standards for director independence established by applicable laws, rules, and listing standards including, without limitation, the standards for independent directors established by The New York Stock Exchange, Inc., The NASDAQ National Market, and the Securities and Exchange Commission.

 

Subject to some exceptions, these standards generally provide that a director will not be independent if (a) the director is, or in the past three years has been, an employee of ours; (b) a member of the director’s immediate family is, or in the past three years has been, an executive officer of ours; (c) the director or a member of the director’s immediate family has received more than $120,000 per year in direct compensation from us other than for service as a director (or for a family member, as a non-executive employee); (d) the director or a member of the director’s immediate family is, or in the past three years has been, employed in a professional capacity by our independent public accountants, or has worked for such firm in any capacity on our audit; (e) the director or a member of the director’s immediate family is, or in the past three years has been, employed as an executive officer of a company where one of our executive officers serves on the compensation committee; or (f) the director or a member of the director’s immediate family is an executive officer of a company that makes payments to, or receives payments from, us in an amount which, in any twelve-month period during the past three years, exceeds the greater of $1,000,000 or two percent of that other company’s consolidated gross revenues.

 

34
 

 

ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES.

 

The following table shows the fees paid or accrued by us for the audit and other services provided by Weaver, Martin & Samyn, LLC for the fiscal periods shown.

 

   September 30, 2012   September 30, 2011 
Audit Fees &  $    $  
Audit Related Fees   24,500    14,500 
Tax Fees        
All Other Fees        
Total  $24,500   $14,500 

 

Audit fees consist of fees billed for professional services rendered for the audit of our financial statements and review of the interim financial statements included in quarterly reports and services that are normally provided by the above auditors in connection with statutory and regulatory fillings or engagements

 

In the absence of a formal audit committee, the full Board of Directors pre-approves all audit and non-audit services to be performed by the independent registered public accounting firm in accordance with the rules and regulations promulgated under the Securities Exchange Act of 1934, as amended. The Board of Directors pre-approved 100% of the audit, audit-related and tax services performed by the independent registered public accounting firm for the fiscal year ended September 30, 2012. The percentage of hours expended on the principal accountant’s engagement to audit the Company’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees was 0%.

 

35
 

 

PART IV

 

ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

 

Exhibits

The following exhibits are included as part of this report by reference:

 

3.1(a)Articles of Incorporation, as amended (1)

 

3.1(b)Articles of Merger as filed with the Secretary of State of Nevada on November 12, 2009 (2)

 

3.2Bylaws of the Company (3)

 

10.1Asset Purchase Agreement dated December 16, 2009 (4)

 

10.2Letter of Intent by and between The Red Oak Trust and UV Flu Technologies, Inc., dated October 28, 2010 (5)

 

14.1Code of Ethics (6)

 

16.1Letter regarding change of Independent Registered Public Accounting Firm (7)

 

31.1Rule 13(a) — 14(a)/15(d) — 14(a) Certification (Principal Executive Officer)

 

31.2Rule 13(a) — 14(a)/15(d) — 14(a) Certification (Principal Financial Officer)

 

32Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

101.INS XBRL Instance Document
   
101.SCH XBRL Taxonomy Extension Schema Document
   
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
   
101.LAB XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
   
101.DEF XBRL Taxonomy Extension Definitions Linkbase Document

 

(1) Incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on November 12, 2009.

(2) Incorporated herein by reference to the Articles of Merger as filed with the Secretary of State of Nevada on November 12, 2009.

(3) Incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form SB-2, filed on January 30, 2007.

(4) Incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on December 18, 2009.

(5) Incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on October 29, 2010.

(6) Incorporated herein by reference to exhibits previously filed on Registrant’s Annual Report on Form 10-K, filed on December 29, 2009.

(7) Incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on December 23, 2009.

 

36
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  UV FLU TECHNOLOGIES, INC.
       
Date: December 31, 2012   By: /s/ John J. Lennon
      John Lennon
      Chief Executive Officer, Chief Financial Officer,
      President, and Director

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Date: December 31, 2012 By: /s/ John J. Lennon
    John Lennon
    Chief Executive Officer, Chief Financial Officer,
    President, and Director
     
Date: December 31, 2012 By: /s/ Roger Nelson
    Roger Nelson
    Secretary and Director
     
Date: December 31, 2012 By: /s/ Thomas J. Mahowald
    Thomas J. Mahowald
    Director
     
Date: December 31, 2012 By: /s/ Dr. Dennis J. Rosen
    Dr. Dennis J. Rosen, M.D., FAAP
    Director

 

37
 

 

UV FLU TECHNOLOGIES, INC

INDEX TO FINANCIAL STATEMENTS

 

with

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

SEPTEMBER 30, 2012

 

    Page
     
Report of Independent Registered Public Accounting Firm Weaver, Martin & Samyn, LLC   F-2
     
Financial Statements:    
     
Balance Sheets at September 30, 2012 and 2011   F-3
     
Statements of Operations for the years ended September 30, 2012 and 2011   F-4
     
Statements of Stockholders’ Equity from September 30, 2010 through September 30, 2012   F-5
     
Statements of Cash Flows for the years ended September 30, 2012 and 2012   F-6
     
Notes to Financial Statements   F-7

 

F-1
 

 

To the Board of Directors and Stockholders

UV Flu Technologies, Inc.

Centerville, Massachusetts

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We have audited the consolidated balance sheets of UV Flu Technologies, Inc. as of September 30, 2012 and 2011 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended. UV Flu Technologies, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.

 

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, an audit of its internal control over financial reporting. Our audits include 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. Our audits of the financial statements include examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and 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 consolidated financial position of UV Flu Technologies, Inc. as of September 30, 2012 and 2011 and the consolidated results of its operations, stockholders’ equity, and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and is dependent upon the continued sale of its securities or obtaining debt financing for funds to meet its cash requirements. 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.

 

Weaver Martin & Samyn, LLC

Kansas City, Missouri

December 31, 2012

 

F-2
 

 

UV FLU TECHNOLOGIES, INC

CONSOLIDATED BALANCE SHEETS

 

   September 30,
2012
   September 30,
2011
 
         
ASSETS          
           
Current Assets          
Cash  $19,941   $9,519 
Accounts receivable   13,171    3,268 
Inventory   133,025    114,407 
Prepaid   160,063    107,184 
           
Total Current Assets   326,200    234,378 
           
Property and Equipment          
Equipment, net of accumulated depreciation of $2,761 and $1,297 as of September 30, 2012 and 2011, respectively   5,678    6,685 
           
Total Assets  $331,878   $241,063 
           
LIABILITIES          
           
Current Liabilities:          
           
Accounts payable and accrued expenses  $54,857   $126,256 
Loans payable, net of discounts of $0 and $19,966 as of September 20, 2012 and 2011, respectively   96,207    158,380 
           
Total Current Liabilities   151,064    284,636 
           
Long term portion of loans payable  $6,124   $12,331 
           
STOCKHOLDERS’ EQUITY          
           
Capital Stock:          
Authorized:          
75,000,000 common shares, par value $0.001 per share          
Issued and outstanding:          
46,859,263 common shares at September 30, 2012 and 20,950,017 common shares at September 30, 2011,   46,860    20,950 
           
Additional paid-in capital   2,493,596    1,467,231 
           
Retained Deficit   (2,365,766)   (1,544,085)
           
Total Stockholders’ Equity   174,690    (55,904)
           
Total Liabilities and Stockholders’ Equity  $331,878   $241,063 

 

F-3
 

 

UV FLU TECHNOLOGIES, INC

CONSOLIDATED STATEMENTS OF OPERATIONS

 

   Year Ended
September 30,
2012
   Year Ended
September 30,
2011
 
         
Sales  $155,871   $155,749 
           
Cost of Sales   71,243    79,969 
           
Gross Profit   84,628    75,780 
           
Expenses          
Bad debt   2,262    9,958 
Depreciation and amortization   1,464    670 
Impairment expense   -    245,378 
General and administrative   845,465    604,343 
           
Total Expenses   849,191    860,349 
           
(Loss) from Operations   (764,563)   (784,569)
           
Other Income (Expense)          
Gain on forgiveness of debt   23,381    - 
Interest expense   (84,143)   (64,504)
Gain on sale of assets   3,644    - 
Total other income (expense)   (57,118)   (64,504)
           
Net (Loss)  $(821,681)  $(849,073)
           
Net Loss Per Share – basic and diluted  $(0.02)  $(0.06)
           
Weighted Average Number Of Shares Outstanding – basic and diluted   38,494,974    14,536,494 

 

F-4
 

 

UV FLU TECHNOLOGIES, INC

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

 

           Additional         
   Capital Stock   Paid-in   Retained     
   Shares   Amount   Capital   Deficit   Total 
                     
Balances, September 30, 2010   11,270,000   $11,270   $162,230   $(695,012)  $(521,512)
                          
Shares issued for compensation   2,412,500    2,412    236,088    -    238,500 
Shares issue d in acquisition   375,000    375    134,625    -    135,000 
Discount issued on Notes Payable   -    -    93,925    -    93,925 
Shares issued for cash   2,250,000    2,250    101,750    -    104,000 
Shares issued for conversion of Notes Payable   4,642,517    4,643    738,613    -    743,256 
Net Loss for the year ended September 30, 2011   -    -    -    (849,073)   (849,073)
                          
Balances, September 30, 2011   20,950,017   $20,950   $1,467,231   $(1,544,085)  $(55,904)
                          
Shares issued for conversion of Notes Payable   10,845,834    10,846    255,454    -    266,300 
Shares issued for services   5,116,250    5,116    164,484    -    169,600 
Shares issued for compensation   2,162,500    2,163    193,137    -    195,300 
Shares issued for cash   5,435,464    5,436    249,226    -    254,662 
Stock issued for accounts payable and accrued expenses   2,349,167    2,349    124,351    -    126,700 
Contributed Capital   -    -    14,000    -    14,000 
Discount issued on Notes Payable   -    -    25,714    -    25,714 
Rounding due to reverse split   31    -    (1)   -    (1)
Net Loss for the year ended September 30, 2012   -    -    -    (821,681)   (821,681)
                          
Balances, September 30, 2012   46,859,263   $46,860   $2,493,596   $(2,365,766)  $174,690 

 

*All amounts have been adjusted to be shown post-split

 

F-5
 

 

UV FLU TECHNOLOGIES, INC

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   Year ended
September 30,
2012
   Year ended
September 30,
2011
 
         
Cash Flows from Operating Activities:          
Net (loss)  $(821,681)  $(849,073)
Adjustments to Reconcile Net Loss to Net Cash Used by Operating Activities:          
Depreciation and amortization   1,464    670 
Stock issued for compensation   195,300    238,500 
Stock issued for services   169,600    - 
Impairment expense   -    245,378 
Amortization of beneficial conversion feature   45,680    73,959 
Gain on sale of assets   (3,644)   - 
Changes in current assets and liabilities          
Accounts receivable   (9,904)   6,982 
Prepaid expenses   (135,881)   (5,119)
Inventory   (18,617)   (5,113)
Accounts payable and accrued expenses   53,656    (42,830)
Net Cash Flows (used) by Operating Activities   (524,027)   (336,646)
           
Cash Flows from Investing Activities:          
Purchase of equipment   (457)   (3,985)
Proceeds from sale of assets   86,644    - 
Net Cash Flows provided by Investing Activities   86,187    (3,985)
           
Cash Flows From Financing Activity:          
Cash acquired in acquisition   -    677 
Cash paid for in acquisition   -    (10,000)
Contributed Capital   14,000    - 
Proceeds/payments on loans payable, net   179,600    255,473 
Sale of common shares   254,662    104,000 
Net Cash Flows  provided by Financing Activities   448,262    350,150 
           
Net increase in cash   10,422    9,519 
           
Cash, Beginning Of Period   9,519    - 
           
Cash, End Of Period  $19,941   $9,519 
           
Supplemental Disclosure Of Cash Flow Information          
Cash paid for interest  $35,926   $1,019 
Cash paid for income taxes  $-   $- 
Subsidiary acquired through issuance of stock  $-   $135,000 
Note payable converted to common shares  $266,300   $743,256 
Stock issued for compensation  $195,300   $238,500 
Accounts Payable and accrued expenses converted to common stock  $126,700   $- 
Stock issued for services  $169,600   $- 

 

F-6
 

 

UV FLU TECHNOLOGIES, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.NATURE AND CONTINUANCE OF OPERATIONS

 

a)Organization

UV Flu Technologies, Inc (referred to herein as “we”, “us”, “our” and similar terms) was incorporated as Northwest Chariots Incorporated in the State of Nevada, United States of America, on April 04, 2006. On November 12, 2009, the Company changed its name from Northwest Chariots Incorporated to UV Flu Technologies, Inc. The Company year-end is September 30th. We acquired our subsidiary, RxAir Industries, LLC, on January 31, 2011. The consolidated financial statements as of September 30, 2012 and 2011 contain the accounts and activities of UV Flu Technologies, Inc. and RxAir Industries, LLC. All intercompany accounts and transactions have been eliminated in consolidation.

 

2.BASIS OF PRESENTATION – GOING CONCERN

 

Our accompanying financial statements have been prepared in conformity with GAAP, which contemplates our continuation as a going concern. In addition, at September 30, 2012, we had incurred losses of $2,365,766, have cash on hand of $19,941, and have working capital of $175,136. There is no assurance that future capital raising plans will be successful in obtaining sufficient funds to assure our eventual profitability. While management believes that actions planned and presently being taken to revise our operating and financial requirements provide the opportunity for us to continue as a going concern, there is no assurance the actions will be successful. In addition, recent events in worldwide capital markets may make it more difficult for us to raise additional equity or debt capital.

 

Our financial statements do not include any adjustments that might result from these uncertainties.

 

3.SIGNIFICANT ACCOUNTING POLICIES

 

This summary of significant accounting policies is presented to assist in understanding our financial statements. Our financial statements and notes are representations of our management who is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles in the United States of America (“GAAP”) and have been consistently applied in the preparation of the financial statements. The financial statements are stated in United States of America dollars.

 

b)Available-for-sale securities

The Company classifies its marketable equity securities as available-for-sale and they are carried at fair market value, with the unrealized gains and losses included in the determination of comprehensive income and reported in stockholders’ equity.

 

b)Income Taxes

We have adopted the ASC subtopic 740-10. ASC 740-10 requires the use of the asset and liability method of accounting of income taxes. Under the asset and liability method of ASC 740-10, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We provide deferred taxes for the estimated future tax effects attributable to temporary differences and carry forwards when realization is more likely than not. See Note 7.

 

c)Inventories

Inventories are stated at the lower of cost or market, with cost being determined using the first-in first-out method. Inventory as of September 30, 2012 consists of $117,904 of finished goods and $15,121 of raw materials for a total inventory of $133,025. Inventory as of September 30, 2011 consisted of $81,145 of finished goods and $33,262 of raw materials for a total inventory of $114,407.

 

F-7
 

 

d)Property and Equipment

Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The estimated useful lives for significant property and equipment categories are as follows:

 

Equipment 5 years
Furniture 7 years

 

The Company reviews the carrying value of property, plant, and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition, and other economic factors. Based on this assessment there were no impairments needed as of September 30, 2012 or 2011. Depreciation expense for the years ended September 30, 2012 and 2011 was $1,464 and $670, respectively.

 

e)Advertising

Advertising costs are expensed as in accordance with ASC subtopic 720-35 (formerly SOP 93-7). Advertising costs for the years ended September 30, 2012 and 2011 were $32,332 and $47,256, respectively. These costs were included in general and administrative costs.

 

f)Basic and Diluted Loss Per Share

In accordance with ASC subtopic 260-10, the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. At September 30, 2012 and 2011, we had no stock equivalents that were anti-dilutive and excluded in the earnings per share computation, therefore basic loss per share and diluted loss per share are the same.

 

g)Estimated Fair Value of Financial Instruments

The carrying value of our financial instruments, consisting of cash, accounts receivable, and accounts payable and accrued expenses approximate their fair value as of September 30, 2012 and 2011 due to the short-term maturity of such instruments. It is management’s opinion that we are not exposed to significant interest, currency, or credit risks arising from these financial statements. See Note 8 for further details.

 

h)Revenue Recognition

It is our policy that revenues will be recognized in accordance with ASC subtopic 605-10. Revenues are recognized only when the Company has transferred to the customer the significant risk and rewards of ownership of the goods, title to the products transfers, the amount is fixed and determinable, evidence of an agreement exists, there is reasonable assurance of collection of the sales proceeds, the Company has no future obligations, and the customer bears the risk of loss. This occurs at the time of shipment (FOB shipping point) of the products from the Company’s warehouse and an invoice is prepared.. There are no rights of return and exchange is allowed only on defective products. Recognition of revenue is not affected as the right of exchange results in new units being shipped to the customer once defective units have been received by the company and verified as defective.

 

F-8
 

 

i)Currency

Our functional currency is the United States Dollar.

 

j)Use of Estimates

The preparation of financial statements in conformity with GAAP 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 amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

k)Cash and Cash Equivalents

Cash is comprised of cash on hand and demand deposits. Cash equivalents include short-term highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. The Company has no cash equivalents as of September 30, 2012 or 2011.

 

l)Sales Concentrations

25% of our sales for the year ended September 30, 2012 have been accounted for by our three largest customers. They represent 6%, 6% and 13% respectively of our total sales, respectively.

 

44% of our sales for the year ended September 30, 2011 have been accounted for by our three largest customers. They represent 15%, 15% and 14% respectively of our total sales, respectively.

 

m)Impairment of long-lived assets

The Company reviews its long-lived assets and intangibles periodically to determine potential impairment by comparing the carrying value of the long-lived assets with the estimated future cash flows expected to result from the use of the assets, including cash flows from disposition. Should the sum of the expected future cash flows be less than the carrying value, the Company would recognize an impairment loss. An impairment loss would be measured by comparing the amount by which the carrying value exceeds the fair value of the long-lived assets and intangibles. The Company recognized no impairment losses during the year ended September 30, 2012.

 

n)Credit Risks

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. At September 30, 2012 and 2011, the Company had no funds in excess of the FDIC insured limits.

 

o)Reclassifications

Certain reclassifications have been made to the prior years’ financial statements to conform to the current year presentation. These reclassifications had no effect on previously reported results of operations or retained earnings.

 

p)Year-end

The Company has adopted September 30 as its fiscal year end.

 

q)Recent Accounting Pronouncements

The Company has evaluated all new accounting pronouncements as of the date of these financial standards and has determined that none have or will have a material impact on the financial statements or disclosures.

 

4.PREPAID EXPENSES AND OTHER ASSETS

 

The Company has $160,063 and $107,184 in prepaid expenses and other assets as of September 30, 2012 and 2011. The balance as of September 30, 2012 consists of prepaid inventory deposits of $136,188, prepaid insurance of $5,984, prepaid rent of $1,950, prepaid interest of $4,000, security deposits of $4,380 and other assets of $7,561. The balance as of September 30, 2011 consists of prepaid inventory deposits of $89,880, prepaid insurance of $6,675, prepaid rent of $1,950, security deposits of $4,380 and other assets of $4,299. The Company expects to use all the prepaid expenses and other assets within the next year.

 

F-9
 

 

5.LOANS PAYABLE AND GAIN ON FORGIVENESS OF DEBT

 

As of September 30, 2010, the Company had $541,864 in notes payable. During the year ended September 30, 2011, the Company converted some of those balances along with additional borrowings and accrued interest into common stock. During the year ended September 30, 2011, $743,256 of notes payables were converted into 4,642,517 shares of common stock.

 

As of September 30, 2011, the Company had a note payable in the amount of 7,500. The note was due on demand and accrued interest at 10%. In December of 2011, the principle balance of $7,500 was converted into 62,500 shares of common stock at fair market value. Accrued interest of $8,907 was forgiven and recorded as forgiveness of debt income. No balance remains on this loan as of September 30, 2012.

 

As of September 30, 2011, the Company had a note payable in the amount of $115,000. The note was due on October 24, 2011 and accrued interest at 6% and was convertible. The beneficial conversion feature of the note was valued and a discount was recorded in the amount of $57,500. During the year ended September 30, 2011, $51,112 of the discount was amortized into interest expense and $6,388 remained as a discount as of September 30, 2012. During the year ended September 30, 2012, the remaining $6,388 discount was amortized into interest expense and there is no discount remaining. In October of 2011, the $115,000 principle balance and $3,000 of accrued interest was converted into 4,916,666 shares of common stock at fair market value. No balance remains on this note as of September 30, 2012.

 

As of September 30, 2011, the Company had a note payable in the amount of $32,500. The note was due on June 6, 2012 and accrued interest at 8% and was convertible. The beneficial conversion feature of the note was valued and a discount was recorded in the amount of $15,275. During the year ended September 30, 2011, $1,697 of the discount was amortized into interest expense and $13,578 remained as a discount as of September 30, 2012. During the year ended September 30, 2012, the remaining $13,578 was amortized into interest expense and there is no discount remaining. This note was repaid in February of 2012 so no balance remains on this note as of September 30, 2012.

 

As of September 30, 2011, the Company had a note payable in the amount of $19,000. The note was due on demand and accrued interest at 6% and was convertible at the market value of the stock on the date the note was executed. There was no beneficial conversion feature related to this note. During the year ended September 30, 2012, an additional $121,800 was received on this loan bringing the balance to $140,800. In May of 2012, the principle balance of $140,800 was converted into 5,866,668 shares of common stock at fair market value. Accrued interest of $2,316 was forgiven and recorded as forgiveness of debt income. No balance remains on this note as of September 30, 2012.

 

As of September 30, 2011, the Company had a note payable in the amount of $16,677. The note is due in 60 monthly installments of $489.15. The note would mature in September of 2014. As of September 30, 2011, the long term portion of this loan was $12,331 and the current portion was $4,346. As of September 30, 2012, the balance due on this note is $12,331 of which $6,124 is long term and $6,207 is current.

 

As of September 30, 2011, the Company had unrelated third party loans payable of $170,111, net of discounts of $19,966. Of this amount $12,331 was long term and $158,380 was current.

 

In August of 2012, the Company borrowed $20,000. The note is due on demand and accrues interest at 5% per calendar month. As of September 30, 2012, the balance of the note is $20,000 and the balance of accrued interest is $1,000.

 

F-10
 

 

In April, July, and August of 2012, the Company borrowed $30,000, $20,000, and $20,000 from the same entity. The notes accrued interest at 4% per month, 1% per month, and 5% per month, respectively. The loans are payable on demand. The April note and the August note are convertible at a rate that was less than the fair market value of the stock on the date the note was executed. This beneficial conversion feature was calculated at $25,714 and was amortized into interest expense immediately since the notes are demand notes. As of September 30, 2012, the balance on these notes is $70,000 and the balance of accrued interest is $500.

 

As of September 30, 2012, the Company had unrelated third party loans payable of $102,331, net of no discounts. Of this amount $6,124 was long term and $96,207 was current.

 

During the year ended September 30, 2012, as detailed out above, the Company converted a total of $266,300 of debt into 10,845,834 shares of common stock. The company also recorded forgiveness of debt income relating to these conversions in the amount of $11,222. During the year the Company also had $12,159 of account payable forgiven to bring total forgiveness of debt income to $23,381for the year ended September 30, 2012.

 

Interest expense, including amortization of discounts, relating to these notes was $84,143 and $64,504 for the year ended September 30, 2012 and 2011, respectively.

 

6.COMMON STOCK

 

Our authorized common stock consists of 75,000,000 shares of common stock with a par value of $0.001 per share. On January 20, 2012, the Company did a 1 for 4 reverse split of its common stock. All stock amount shown in these financial statements have been adjusted for that split.

 

On September 30, 2010, the Company had 11,270,000 shares of common stock issued and outstanding. There were no outstanding options or warrants.

 

On January 20, 2011, we issued 250,000 shares of common stock to the directors of the Company for compensation. The shares given were valued at the current market price of $.244 per share for a total consideration of $61,000

 

On February 9, 2011, we issued 375,000 shares of common stock in the acquisition of RxAir Industries, LLC. The shares issued were valued at the current market price on the date of acquisition of $135,000 ($.36 per share). See note10 for further details.

 

On February 9, 2011, we issued 56,250 shares of common stock to three key Rx Air personnel as for consulting services related to the acquisition of RxAir Industries, LLC. The shares given were valued at the current market price on the date of acquisition of $.36 per share for a total consideration of $20,250. See note 4

 

On February 22, 2011, we issued 437,500 shares of common stock to directors for compensation. The shares given were valued at the current market price of $.136 per share for a total consideration of $59,500.

 

On February 22, 2011, we issued 43,750 shares of common stock to consultants for consulting and marketing services to the Company. The shares given were valued at the current market price of $.136 per share for a total consideration of $5,950

 

On February 22, 2011, we issued 112,500 shares of common stock of the Company at a price of $0.08 for cash totaling $9,000

 

On February 25, 2011, we issued 2,486,549 shares of common stock at a price of $0.28 in settlement of $696,234 of convertible debt. See note 5 for further detail.

 

On May 2, 2011, we issued 537,500 shares of common stock at a price of $.08 for cash totaling $43,000.

 

On June 7, 2011, we issued 850,000 shares of common stock in the Company at a price of $.04 for cash totaling $34,000.

 

F-11
 

 

On June 7, 2011, we issued 550,000 shares of common stock as compensation for services performed. The shares were valued at the current market price of $.12 per share for a total consideration of $66,000.

 

On June 23, 2011, the Company approved a vote authorizing an increase in the number of shares authorized from 18.75 to 37.5 million shares.

 

On October 3, 2011, the Company approved a vote authorizing an increase in the number of shares authorized from 37.5 to 50 million shares. The Company also authorized a shareholder vote to approve the Company’s common stock to undergo a reverse stock split, on a ratio of 1:4. The reverse split was approved by shareholder vote and was officially done on January 20, 2012.

 

On September 30, 2011, the Company had 20,950,017 shares of common stock issued and outstanding. There were no outstanding options or warrants.

 

During the year ended September 30, 2012, the Company issued 10,845,834 shares of common stock in relation to conversions of notes payable in the amount of $266,300. See Note 5 for further details.

 

During the year ended September 30, 2012, the president of the Company contributed assets with a fair market value of $14,000 to the Company. This contribution will not be repaid and was considered contributed capital.

 

In October of 2011, the Company issued 4,291,667 shares for consulting services. The shares were valued at $0.24, fair market value, for a total expense of $103,000.

 

In October of 2011, the Company issued 1,729,167 shares of common stock for $55,500 of accounts payable held by a related party. The shares were valued at market value. See note 11 for further details.

 

In October of 2011, the Company issued 1,062,500 shares of common stock for compensation amounting to $25,500. The shares were valued at market value.

 

In December of 2011, the Company issued 62,500 shares of common stock at a purchase price of $.08, for total proceeds of $5,000.

 

In December of 2011, the Company issued 105,000 shares of common stock for consulting services. The shares were valued at $.06, fair market value, for a total expense of $6,300.

 

In February of 2012, the Company issued 493,750 shares of common stock at a purchase price of $.08, for total proceeds of $39,500.

 

In February of 2012, the Company issued 500,000 shares of common stock as compensation. The shares were valued at market value for a total expense of $90,000

 

In February of 2012, the Company issued 56,250 shares of common stock for consulting services. The shares were valued at $.08, fair market value, for a total expense of $4,500.

 

In February of 2012, the Company issued 400,000 to satisfy a $60,000 accrued expense liability. The shares were valued at fair market value.

 

In April of 2012, the Company issued 2,799,214 shares of common stock at a purchase price of $.04, for total proceeds of $121,162.

 

In April of 2012, the Company issued 600,000 shares of common stock as compensation. The shares were valued at market value for a total expense of $79,800

 

In April of 2012, the Company issued 100,000 shares of common stock for consulting services. The shares were valued at $.133, fair market value, for a total expense of $13,300.

 

F-12
 

 

In April of 2012, the Company issued 120,000 shares of common stock as payment of interest. The shares were valued at market value for a total expense of $7,200

 

In May of 2012, the Company issued 1,000,000 shares of common stock at a purchase price of $.05, for total proceeds of $50,000.

 

In May of 2012, the Company issued 113,333 shares of common stock for consulting services. The shares were valued at $.15, fair market value, for a total expense of $17,000.

 

In August and September of 2012, the Company issued 1,100,000 shares of common stock at various purchase prices, for total proceeds of $39,000.

 

In August and September of 2012, the Company issued 450,000 shares of common stock for consulting services. The shares were valued at fair market value, for a total expense of $25,500.

 

In September of 2012, the Company issued 100,000 shares of common stock as payment of interest. The shares were valued at market value for a total expense of $4,000

 

As of September 30, 2012, the Company has 46,859,263 shares of common stock issued and outstanding and no outstanding options or warrants.

 

7.INCOME TAXES

 

We are subject to income taxes in the United States. Substantially all operations prior to September 30, 2009 were in Canada. Substantially all operations after October of 2010 have been conducted in the United States.

 

Deferred income taxes arise from temporary timing differences in the recognition of income and expenses for financial reporting and tax purposes. Our deferred tax assets consist entirely of the benefit from net operating loss (“NOL”) carry-forwards. Our deferred tax assets are offset by a valuation allowance due to the uncertainty of the realization of the NOL carry-forwards. NOL carry-forwards may be further limited by a change in our ownership, other provisions of the tax laws, and because we have never filed income tax returns.

 

The provision for refundable Federal income tax, using an effective tax rate of thirty-four percent (34%), consists of the following:

 

   Year Ended
September 30,
2012
   Year Ended
September 30,
2011
 
Refundable Federal income tax attributable to:          
Current operations  $(213,000)  $(289,000)
Change in deferred tax valuation allowance   213,000    289,000 
Net refundable amount   -    - 

 

The cumulative tax effect at the expected rate of thirty-four percent (34%) of significant items comprising our net deferred tax amount is as follows:

 

   September 30,
2012
   September 30,
2011
 
Deferred tax asset attributable to:          
Net operating loss carryover  $611,000   $398,000 
Less: Valuation allowance   (611,000)   (398,000)
Net deferred tax asset   -    - 

 

As of September 30, 2012, we had an unused Canadian NOL carryover of approximating $128,859 that is available to offset future taxable income in Canada; it begins to expire in 2026. The Company currently has no Canadian operations. As of September 30, 2012, we have unused NOL carryover of approximately $1,796,230 that is available to offset future taxable income in the U.S., it begins to expire in 2030. These U.S. NOL’s may be limited because we have not filed income tax returns for the current period or any previous periods.

 

F-13
 

 

7.Fair Value Measurements

 

The Company adopted ASC Topic 820-10 at the beginning of 2009 to measure the fair value of certain of its financial assets required to be measured on a recurring basis. The adoption of ASC Topic 820-10 did not impact the Company’s financial condition or results of operations. ASC Topic 820-10 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). ASC Topic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability. The three levels of the fair value hierarchy under ASC Topic 820-10 are described below:

 

Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.

 

Level 2 – Valuations based on quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

 

Level 3 – Valuations based on inputs that are supportable by little or no market activity and that are significant to the fair value of the asset or liability.

 

The following table presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis as of September 30, 2012:

 

   Level 1   Level 2   Level 3   Fair Value 
Cash  $19,941   $-   $-   $19,941 
Accounts receivable   -    13,171    -    13,171 
Accounts payable   -    54,857    -    54,857 
Notes Payable   -    102,331    -    102,331 

 

The following table presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis as of September 30, 2011:

 

   Level 1   Level 2   Level 3   Fair Value 
Cash  $9,519   $-   $-   $9,519 
Accounts receivable   -    3,268    -    3,268 
Accounts payable   -    126,256    -    126,256 
Notes Payable   -    170,711    -    170,711 

 

9.COMMITMENTS

 

The Company has entered into three leases for its main business locations as of September 30, 2012. The first lease for office space calls for payments of $900 to $1,000 per month from August 15, 2010 to August 14, 2013. The second lease for office space calls for payments of $1,460 per month from May 1, 2012 to April 30, 2013. The third lease for a corporate service package calls for payments of $175 per month from August 1, 2012 to January 31, 2013. The minimum future payments under these leases are $11,620 for the year ended September 30, 2013. Rent expense was $31,167 and $24,020 for the years ended September 30, 2012 and 2011, respectively.

 

F-14
 

 

10.Acquisition of RxAir Industries, LLC AND Related Goodwill Impairment

 

In January of 2011, the Company acquired RxAir Industries, LLC (RxAir). Our consolidated financial statements for the year ended September 30, 2011 includes the financial results of RxAir from the date of the acquisition to September 30, 2011. The company paid $10,000 in cash, $115,000 in the form of a note payable, and issued 375,000 shares of common stock, which was valued at $135,000 based on the closing market price on the date of the agreement of $0.36, for a total purchase price of $260,000. The following table accounts for the purchase price, the assets acquired and the subsequent goodwill:

 

Tangible assets acquired, net of liabilities assumed  $14,622 
Goodwill   245,378 
Total purchase price paid  $260,000 

 

The Company then reviewed the goodwill for impairment. Due to no historical proven track record of cash flows generated by RxAir, the goodwill was fully impaired and $245,378 of impairment expense was recorded during the year ended September 30, 2011.

 

11.RELATED PARTY TRANSACTIONS

 

During the years ended September 30, 2012 and 2011, the Company paid a Chamberlain Capital Partners’, a company owned by the president, for his services and also reimbursed Chamberlain for the President’s health insurance and for miscellaneous office expenses. During the year ended September 30, 2012, the Company paid Chamberlain approximately $51,000 in compensation for the President’s services, and approximately $15,000 in reimbursements for health insurance and miscellaneous office expenses. For the year ended September 30, 2011, the Company paid Chamberlain approximately $23,000 and accrued another $55,000 in compensation for the President’s services, and approximately $15,000 in reimbursements for health insurance and miscellaneous office expenses.

 

During the year ended September 30, 2012, the Company had an accounts payable to Chamberlain in relation to the compensation for the President’s services of $55,500. In October of 2011, the Company satisfied this accounts payable by issuing 1,729,167 shares of common stock to Chamberlain. The common stock was valued at fair market value at the time of the conversion.

 

12.SUBSEQUENT EVENTS

 

The Company has evaluated all subsequent events through the date these financial statements were issued and determined that there are no subsequent events to record and the following subsequent events to disclose:

 

In October of 2012, the Company amended its Articles of Incorporation to increase the number of authorized common stock shares from 50,000,000 to 75,000,000. The par value remains $.001

 

In October of 2012, the Company issued 1,950,000 shares of common stock for a capital investment of $78,000, and 3,552,500 shares of common stock for consulting and directors fees, and related expenses.

 

F-15