Attached files

file filename
8-K/A - ACTIVECARE, INC. FORM 8-KA NOVEMBER 16, 2012 - ACTIVECARE, INC.acar8k20121116.htm
 
Exhibit 99.1


 
 

 
 
Table of Contents



 
Page
   
Report of Independent Registered Public Accounting Firm
3
   
Combined Balance Sheets as of December 31, 2011 and 2010
4
   
Combined Statements of Operations for the Years Ended December 31, 2011 and 2010
5
   
Combined Statements of Equity for the Years Ended December 31, 2011 and 2010
6
   
Combined Statements of Cash Flows for the Years Ended December 31, 2011 and 2010
7
   
Notes to Combined Financial Statements
8
   
 
 
 

 
 
Report of Independent Registered Public Accounting Firm
 
 
To the Stockholders and Members of
     Green Wire, LLC
     Green Wire Outsourcing, Inc.
     Orbit Medical Response, LLC
     Rapid Medical Response, LLC
 
We have audited the accompanying combined balance sheets of Green Wire, LLC, Green Wire Outsourcing, Inc., Orbit Medical Response, LLC and Rapid Medical Response, LLC (collectively, the Company) as of December 31, 2011 and 2010 and the related statements of operations, equity and cash flows for the years then ended.  These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of Green Wire, LLC, Green Wire Outsourcing, Inc., Orbit Medical Response, LLC and Rapid Medical Response, LLC as of December 31, 2011 and 2010 and the results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
 
/s/ Tanner LLC
 
Salt Lake City, Utah
January 15, 2013
 
 
3

 
 
 
GREEN WIRE, LLC
GREEN WIRE OUTSOURCING, INC.
ORBIT MEDICAL RESPONSE, LLC
RAPID MEDICAL RESPONSE, LLC

COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 2011 AND 2010

   
2011
   
2010
 
Assets
           
  Current assets:
           
 Cash
  $ 157,237     $ 19,920  
      Accounts receivable
    63,168       27,997  
            Total current assets
    220,405       47,917  
  Property and equipment, net
    193,344       111,783  
      Other assets
    16,959       16,299  
                 Total assets
  $ 430,708     $ 175,999  
                 
Liabilities and Equity
               
    Current liabilities:
               
      Accounts payable
  $ 49,847     $ 20,453  
      Accrued liabilities
    66,634       32,816  
            Total current liabilities
    116,481       53,269  
                 
Commitments and contingencies
               
                 
Equity:
               
      Common stock, $0.0229 par value, 200,000 shares authorized;
               
   50,000 shares outstanding
    1,145       1,145  
      Additional paid-in capital
    818,640       438,590  
      Accumulated deficit
    (505,558 )     (317,005 )
            Total equity
    314,227       122,730  
                 
                Total liabilities and equity
  $ 430,708     $ 175,999  
                 

See accompanying notes to combined financial statements.
 
 
4

 
 
 

 GREEN WIRE, LLC
GREEN WIRE OUTSOURCING, INC.
ORBIT MEDICAL RESPONSE, LLC
RAPID MEDICAL RESPONSE, LLC

COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

   
2011
   
2010
 
             
Revenues
  $ 2,823,969     $ 192,219  
Cost of revenues
    (2,096,684 )     (258,834 )
                 
Gross margin (deficit)
    727,285       (66,615 )
                 
Selling, general and administrative expenses
    915,838       250,390  
                 
Net loss
  $ (188,553 )   $ (317,005 )
                 

See accompanying notes to combined financial statements.
 
 
5

 


 

GREEN WIRE, LLC
GREEN WIRE OUTSOURCING, INC.
ORBIT MEDICAL RESPONSE, LLC
RAPID MEDICAL RESPONSE, LLC

COMBINED STATEMENTS OF EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

   
Green Wire
 Outsourcing, Inc.
                   
   
Common Stock
   
Additional
Paid-In
   
Accumulated
   
 
Total
 
   
Shares
   
Amount
   
Capital
   
Deficit
   
Equity
 
                               
Balance as of January 1, 2010
    -     $ -     $ -     $ -     $ -  
                                         
     Issuance of 50,000 shares of common stock
    50,000       1,145       -       -       1,145  
                                         
     Contributions from stockholders and members
    -       -       438,590       -       438,590  
                                         
     Net loss
    -       -       -       (317,005 )     (317,005 )
                                         
Balance as of December 31, 2010
    50,000       1,145       438,590       (317,005 )     122,730  
                                         
     Contributions from stockholders and members
    -       -       380,050       -       380,050  
                                         
     Net loss
    -       -       -       (188,553 )     (188,553 )
                                         
Balance as of December 31, 2011
    50,000     $ 1,145     $ 818,640     $ (505,558 )   $ 314,227  

See accompanying notes to financial statements.
 
 
6

 
 


 GREEN WIRE, LLC
GREEN WIRE OUTSOURCING, INC.
ORBIT MEDICAL RESPONSE, LLC
RAPID MEDICAL RESPONSE, LLC

COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010


   
2011
   
2010
 
             
Cash flows from operating activities:
           
     Net loss
  $ (188,553 )   $ (317,005 )
     Adjustments to reconcile net loss to net cash
               
     used in operating activities:
               
Depreciation
    93,439       23,379  
                   Changes in operating assets and liabilities:
               
               Accounts receivable
    (35,171 )     (27,997 )
               Other assets
    (660 )     (16,299 )
          Accounts payable
    29,394       20,453  
          Accrued liabilities
    33,818       32,816  
                  Net cash used in operating activities
    (67,733 )     (284,653 )
                 
Cash flows from investing activities:
               
      Purchase of property and equipment
    (175,000 )     (135,162 )
                 
Cash flows from financing activities:
               
  Issuance of common stock
    -       1,145  
  Contributions from stockholders and members
    380,050       438,590  
                  Net cash provided by financing activities
    380,050       439,735  
                 
Net increase in cash
    137,317       19,920  
Cash at beginning of the year
    19,920       -  
                 
Cash at end of the year
  $ 157,237     $ 19,920  

See accompanying notes to combined financial statements.
 
 
7

 
 

 GREEN WIRE, LLC
GREEN WIRE OUTSOURCING, INC.
ORBIT MEDICAL RESPONSE, LLC
RAPID MEDICAL RESPONSE, LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

(1)
Description of Organization and Summary of Significant Accounting Policies
 
Organization and Principles of Combination
 
The combined financial statements include the accounts of Green Wire, LLC, Green Wire Outsourcing, Inc.,  Orbit Medical Response, LLC, and Rapid Medical Response, LLC (collectively, the Company).  The companies have common ownership.  All significant intercompany transactions and balances have been eliminated in combination.
 
Description of the Business
 
The Company provides rapid emergency response systems and provides and sells marketing leads to healthcare providers in group networking systems for specific medical conditions.

Liquidity
 
The Company has incurred losses since inception that total approximately $506,000 as of December 31, 2011.  The Company used net cash of approximately $68,000 in operating activities in 2011.  The net losses and use of cash in operating activities resulted primarily from marketing efforts.  Management expects continued losses through 2012 and into 2013 until the Company reaches its critical mass customer levels.  The Company has received contributions from stockholders and members totaling $818,640 through December 31, 2011 and an additional $868,324 through the date the Company was acquired by ActiveCare, Inc. (September 1, 2012).

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Concentrations of Credit Risk

In the normal course of business, the Company provides credit terms to its customers and requires no collateral. Accordingly, the Company performs ongoing credit evaluations of its customers’ financial condition.  Based upon the Company’s analysis of each customer and the expected collectability of the related accounts receivable, no allowance for doubtful accounts is necessary as of December 31, 2011 and 2010.

Each of two customers accounted for 43% and 11% of total revenue for the year ended December 31, 2011.  One customer accounted for 42% of total revenue for the year ended December 31, 2010.  As of December 31, 2011, each of three customers accounted for 28%, 25% and 24% of total accounts receivable.  As of December 31, 2010, each of three customers accounted for 51%, 14%, and 14% of total accounts receivable.

Cash

The Company has cash in bank accounts that, at times, may exceed federally insured limits.  The Company has not experienced any losses in such accounts.  The Company had no cash in excess of federally insured limits as of December 31, 2011 and 2010.
 
 
8

 


 

 GREEN WIRE, LLC
GREEN WIRE OUTSOURCING, INC.
ORBIT MEDICAL RESPONSE, LLC
RAPID MEDICAL RESPONSE, LLC

NOTES TO COMBINED FINANCIAL STATEMENTS
Continued
Accounts Receivable

Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables, if necessary, based on a review of all outstanding amounts on a monthly basis.  Specific reserves are estimated by management based on certain assumptions and variables, including the customer’s insurance coverage and age of the customer’s receivables.  Receivables are written off when the likelihood of collection is considered remote.  Recoveries of receivables previously written off are recorded when cash is received.  A receivable is considered to be past due if any portion of the receivable balance has not been received by the Company within its normal terms.  Interest is not charged on receivables that are past due.  As of December 31, 2011 and 2010 there were no allowances for doubtful accounts required against the Company’s receivables.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation.  Depreciation is calculated using the straight-line method over the estimated economic useful lives of the assets as follows:

 
Office and computer equipment
3 years
 
Software
3 years
 
Furniture and fixtures
7 years

Expenditures that materially increase values or capacities or extend useful lives of property and equipment are capitalized.  Routine maintenance, repairs, and renewal costs are expensed as incurred.  Upon sale or other retirement of depreciable property, the cost and accumulated depreciation are removed from the related accounts and any gain or loss is reflected in the statements of operations.

Operating Leases

The Company leases its facilities under operating leases.  See Note 5.

Revenue Recognition

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

Income Taxes

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

Green Wire Outsourcing, Inc., an entity located in the Philippines, is subject to income taxes in the Philippines.  This entity has limited operations and income taxes are not material.  Therefore, deferred income tax and income tax disclosures have not been provided in the financial statements.
 
As of December 31, 2011 and 2010, the Company had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements.  The Company’s 2011, 2010 and 2009 tax returns are open to federal and state income tax examination.
Subsequent Events

Management has evaluated events and transactions for potential recognition or disclosure through January 15, 2013, which is the date the financial statements were issued.

 
9

 

 
 GREEN WIRE, LLC
GREEN WIRE OUTSOURCING, INC.
ORBIT MEDICAL RESPONSE, LLC
RAPID MEDICAL RESPONSE, LLC

NOTES TO COMBINED FINANCIAL STATEMENTS
Continued

(2)
Property and Equipment

Property and equipment consisted of the following as of December 31:

       
   
2011
   
2010
 
Office and computer equipment
  $ 260,142     $ 91,494  
Software
    40,000       40,000  
Furniture and fixtures
    10,020       3,668  
      310,162       135,162  
Less accumulated depreciation
    (116,818 )     (23,379 )
    $ 193,344     $ 111,783  

Depreciation on property and equipment for the years ended December 31, 2011 and 2010 was $93,439 and $23,379, respectively.

(3)
Accrued Liabilities

Accrued liabilities consisted of the following as of December 31, 2011 and 2010:

       
   
2011
   
2010
 
Payroll related liabilities
  $ 52,482     $ 28,044  
Deferred revenue
    14,152       4,772  
    $ 66,634     $ 32,816  

(4)
Capital Structure

Green Wire LLC, Orbit Medical Response, LLC and Rapid Medical Response, LLC were owned by three different ownership groups.
 
Green Wire Outsourcing, Inc. is a corporation that has 200,000 authorized common shares, 50,000 outstanding common shares owned by five different ownership groups.

(5)
Commitments and Contingencies

Litigation

Rapid Medical Response, LLC (“Rapid Medical”) and other companies have been named in a lawsuit for violation of the Federal Telephone Consumer Protection Act (“TCPA”).  Rapid Medical and certain other defendants entered into a consent order granting injunctive relief that was entered by the court on December 10, 2012 without admitting liability and with the right to vacate the order.  By this consent, Rapid Medical agreed not to violate the TCPA as it relates to telephone calls to cellular customers using an automatic telephone dialing system or artificial or pre-recorded voice.  The plaintiff seeks an unspecified amount of damages.  At this early stage, management, after consultation with legal counsel, cannot predict whether an unfavorable outcome is either probable or remote.  The lawsuit is being defended vigorously and Rapid Medical has meritorious defenses to the claims.  Rapid Medical denies the allegations and will file a motion to dismiss all claims asserted by the Plaintiff.  There is no trial date and discovery has just commenced.
The Company is involved in other legal proceedings from time to time arising in the normal course of business.  Management, after consultation with legal counsel, believes that the outcome of these proceedings will not have a material impact on the Company’s financial position, results of operations, or liquidity.
 
 
10

 
 

 GREEN WIRE, LLC
GREEN WIRE OUTSOURCING, INC.
ORBIT MEDICAL RESPONSE, LLC
RAPID MEDICAL RESPONSE, LLC

NOTES TO COMBINED FINANCIAL STATEMENTS
Continued

Operating Leases

The Company leases office facilities under non-cancelable operating leases.  As of December 31, 2011, future minimum lease payments under non-cancelable operating leases with terms of one year or more were as follows:

       
Years Ending December 31
 
Amount
 
2012
  $ 56,505  
2013
    31,501  
2014
    7,642  
    $ 95,648  

Rental expense under operating leases was $59,624 and $22,839 for the years ended December 31, 2011 and 2010, respectively.

(6)
Related-Party Transactions

The Company recognized revenue of $355,394 and $92,737 for the years ended December 31, 2011 and 2010, respectively, from related parties.  The Company had related-party accounts receivable of $19,638 and $8,823 as of December 31, 2011 and 2010, respectively.
The Company recognized expenses of $57,627 and $30,282 for the years ended December 31, 2011 and 2010, respectively, from related parties.  The Company had related-party accounts payable of $11,818 and $6,990 as of December 31, 2011 and 2010, respectively.

(7)
Subsequent Event

On September 1, 2012, the Company was acquired by GWire Corporation (GWire), a subsidiary of ActiveCare, Inc.  Pursuant to the acquisition agreement, GWire acquired 100% of the assets and interests of the Company.  GWire entered into employment agreements with two of the Company’s operating managers on November 1, 2012.  These two individuals were granted 27% ownership in GWire and ActiveCare, Inc. owns the remaining 73% of GWire’s interests.  The purchase price consisted of the following:

$2,690,181 in the form of a note payable (including imputed interest), with a 36-month term;
20,000 shares of ActiveCare’s Series D convertible preferred stock.

Under the purchase method of accounting, the purchase price has been preliminarily allocated to the assets purchased and liabilities assumed based on their estimated fair values as of the closing date of the acquisition.

 
11

 


 
 

 

Table of Contents



 
Page
   
   
Combined Condensed Balance Sheets (Unaudited)
3
   
Combined Condensed Statements of Operations (Unaudited)
4
   
Combined Condensed Statements of Cash Flows (Unaudited)
5
   
Notes to Combined Condensed Financial Statements (Unaudited)
6
   
 
 
 

 



 GREEN WIRE, LLC
GREEN WIRE OUTSOURCING, INC.
ORBIT MEDICAL RESPONSE, LLC
RAPID MEDICAL RESPONSE, LLC

COMBINED CONDENSED BALANCE SHEETS (UNAUDITED)
AS OF JUNE 30, 2012 AND DECEMBER 31, 2011

   
June 30,
   
December 31,
 
   
2012
   
2011
 
Assets
           
Current assets:
           
     Cash
  $ 46,353     $ 157,237  
     Accounts receivable
    8,323       63,168  
        Total current assets
    54,676       220,405  
Property and equipment, net
    280,299       193,344  
Other assets
    17,924       16,959  
        Total assets
  $ 352,899     $ 430,708  
                 
Liabilities and Equity
               
Current liabilities:
               
     Accounts payable
  $ 92,253     $ 49,847  
     Accrued liabilities
    72,894       66,634  
        Total liabilities     165,147       116,481  
                 
 
  Commitments and contingencies
               
                 
Equity:
               
     Common stock, $0.0229 par value, 200,000 shares authorized; 50,000 shares
        outstanding
    1,145       1,145  
     Additional paid-in capital
    1,365,217       818,640  
     Accumulated deficit
    (1,178,610 )     (505,558 )
        Total equity
    187,752       314,227  
                 
        Total liabilities and equity
  $ 352,899     $ 430,708  

See accompanying notes to unaudited combined condensed financial statements.

3
 
 

 


  GREEN WIRE, LLC
GREEN WIRE OUTSOURCING, INC.
ORBIT MEDICAL RESPONSE, LLC
RAPID MEDICAL RESPONSE, LLC

COMBINED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

   
2012
   
2011
 
             
Revenues
  $ 425,277     $ 1,000,766  
Cost of revenues
    (635,915 )     (817,024 )
        Gross margin (deficit)
    (210,638 )     183,742  
                 
Selling, general and administrative expenses
    462,414       350,450  
                 
        Net loss
  $ (673,052 )   $ (166,708 )
 
See accompanying notes to unaudited combined condensed financial statements.
4
 
 

 

 

  GREEN WIRE, LLC
GREEN WIRE OUTSOURCING, INC.
ORBIT MEDICAL RESPONSE, LLC
RAPID MEDICAL RESPONSE, LLC

COMBINED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

   
2012
   
2011
 
             
Cash flows from operating activities:
           
   Net loss
  $ (673,052 )   $ (166,708 )
   Adjustments to reconcile net loss to net cash used in operating activities:
               
        Depreciation
    32,743       33,009  
        Changes in operating assets and liabilities:
               
Accounts receivable
    54,845       (51,856 )
Other assets
    (965 )     1,340  
Accounts payable
    42,406       24,761  
Accrued liabilities
    6,260       25,737  
                 
Net cash used in operating activities
    (537,763 )     (133,717 )
                 
Cash flows from investing activities:
               
               Purchase of property and equipment
    (119,698 )     (144,303 )
                 
Cash flows from financing activities:
               
                 
Contributions from stockholders and members
    546,577       340,050  
                 
Net (decrease) increase in cash
    (110,884 )     62,030  
                 
Cash at beginning of the period
    157,237       19,920  
                 
Cash at end of the period
  $ 46,353     $ 81,950  
 
See accompanying notes to unaudited combined condensed financial statements.
5
 
 

 
 
 
  GREEN WIRE, LLC
GREEN WIRE OUTSOURCING, INC.
ORBIT MEDICAL RESPONSE, LLC
RAPID MEDICAL RESPONSE, LLC

NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


(1)
Description of Organization and Summary of Significant Accounting Policies
 
Organization and Principles of Combination
 
The combined financial statements include the accounts of Green Wire, LLC, Green Wire Outsourcing, Inc.,  Orbit Medical Response, LLC, and Rapid Medical Response, LLC (collectively, the Company).  The companies have common ownership.  All significant intercompany transactions and balances have been eliminated in combination.
 
Description of the Business
 
The Company provides rapid emergency response systems and provides and sells marketing leads to healthcare providers in group networking systems for specific medical conditions.

Liquidity

The Company has incurred losses since inception that total approximately $1,179,000 as of June 30, 2012.  The Company used net cash of approximately $538,000 in operating activities for the six months ended June 30, 2012.  The net losses and use of cash in operating activities resulted primarily from marketing efforts.  Management projects continued losses for the remainder of 2012 and into 2013 until the Company reaches its critical mass customer levels.  The Company received contributions from stockholders and members totaling $321,747 from June 30, 2012 through September 1, 2012, the date the Company was acquired by ActiveCare, Inc.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Cash

The Company has cash in bank accounts that, at times, may exceed federally insured limits.  The Company has not experienced any losses in such accounts.  The Company had no cash in excess of federally insured limits as of June 30, 2012 and December 31, 2011.

Accounts Receivable

Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables, if necessary, based on a review of all outstanding amounts on a monthly basis.  Specific reserves are estimated by management based on certain assumptions and variables, including the customer’s insurance coverage and age of the customer’s receivables.  Receivables are written off when the likelihood of collection is considered remote.  Recoveries of receivables previously written off are recorded when cash is received.  A receivable is considered to be past due if any portion of the receivable balance has not been received by the Company within its normal terms.  Interest is not charged on receivables that are past due.  As of June 30, 2012 and December 31, 2011, there were no allowances for doubtful accounts required against the Company’s receivables.
 
6
 
 

 

  

  GREEN WIRE, LLC
GREEN WIRE OUTSOURCING, INC.
ORBIT MEDICAL RESPONSE, LLC
RAPID MEDICAL RESPONSE, LLC

NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Continued

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation.  Depreciation is calculated using the straight-line method over the estimated economic useful lives of the assets as follows:

  Office and computer equipment
3 years
  Software
3 years
  Furniture and fixtures
7 years

Expenditures that materially increase value or capacities or extend useful lives of property and equipment are capitalized.  Routine maintenance, repairs, and renewal costs are expensed as incurred.  Upon sale or other retirement of depreciable property, the cost and accumulated depreciation are removed from the related accounts and any gain or loss is reflected in the statements of operations.

Revenue Recognition

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

Income Taxes

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

Green Wire Outsourcing, Inc., an entity located in the Philippines, is subject to income taxes in the Philippines.  This entity has limited operations and income taxes are not material.  Therefore, deferred income tax and income tax disclosures have not been provided in the financial statements.

As of June 30, 2012 and December 31, 2011, the Company had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements.  The Company’s 2011, 2010 and 2009 tax returns are open to federal and state income tax examination.

Subsequent Events

Management has evaluated events and transactions for potential recognition or disclosure through January 15, 2013, which is the date the financial statements were issued.
 
7
 
 

 

  

  GREEN WIRE, LLC
GREEN WIRE OUTSOURCING, INC.
ORBIT MEDICAL RESPONSE, LLC
RAPID MEDICAL RESPONSE, LLC

NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Continued

(2)
Property and Equipment, net

Property and equipment consisted of the following as of June 30, 2012 and December 31, 2011:

       
   
June 30,
   
December 31,
 
   
2012
   
2011
 
Office and computer equipment
  $ 379,840     $ 260,142  
Software
    40,000       40,000  
Furniture and fixtures
    10,020       10,020  
      429,860       310,162  
Less accumulated depreciation
    (149,561 )     (116,818 )
    $ 280,299     $ 193,344  

Depreciation on property and equipment for the six-month period ended June 30, 2012 was $32,743.  Depreciation on property and equipment for the year ended December 31, 2011 was $93,439.


(3)
Accrued Liabilities

Accrued liabilities consisted of the following as of June 30, 2012 and December 31, 2011:

       
   
June 30,
   
December 31,
 
   
2012
   
2011
 
Payroll related liabilities
  $ 45,153     $ 52,482  
Deferred revenue
    25,169       14,152  
Other
    2,572       -  
    $ 72,894     $ 66,634  

(4)
Capital Structure

Green Wire LLC, Orbit Medical Response, LLC and Rapid Medical Response, LLC were owned by three different ownership groups.

Green Wire Outsourcing, Inc. is a corporation that has 200,000 authorized common shares, 50,000 outstanding common shares owned by five different ownership groups.

8
 
 

 


  GREEN WIRE, LLC
GREEN WIRE OUTSOURCING, INC.
ORBIT MEDICAL RESPONSE, LLC
RAPID MEDICAL RESPONSE, LLC

NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Continued


(5)
Commitments and Contingencies

Litigation

Rapid Medical Response, LLC (“Rapid Medical”) and other companies have been named in a lawsuit for violation of the Federal Telephone Consumer Protection Act (“TCPA”).  Rapid Medical and certain other defendants entered into a consent order granting injunctive relief that was entered by the court on December 10, 2012 without admitting liability and with the right to vacate the order.  By this consent, Rapid Medical agreed not to violate the TCPA as it relates to telephone calls to cellular customers using an automatic telephone dialing system or artificial or pre-recorded voice.  The plaintiff seeks an unspecified amount of damages.  At this early stage, management, after consultation with legal counsel, cannot predict whether an unfavorable outcome is either probable or remote.  The lawsuit is being defended vigorously and Rapid Medical has meritorious defenses to the claims.  Rapid Medical denies the allegations and will file a motion to dismiss all claims asserted by the Plaintiff.  There is no trial date and discovery has just commenced.

The Company is involved in other legal proceedings from time to time arising in the normal course of business.  Management, after consultation with legal counsel, believes that the outcome of these proceedings will not have a material impact on the Company’s financial position, results of operations, or liquidity.

(6)
Related-Party Transactions

The Company recognized revenue of $52,326 and $203,793 for the periods ended June 30, 2012 and 2011, respectively, from related parties.  The Company had related-party accounts receivable of $5,908 and $19,638 as of June 30, 2012 and December 31, 2011, respectively.

The Company recognized expenses of $1,734 and $17,411 for the periods ended June 30, 2012 and 2011, respectively, from related parties.  The Company had related-party accounts payable of $5,219 and $11,818 as of June 30, 2012 and December 31, 2011, respectively.

(7)
Subsequent Event

On September 1, 2012, the Company was acquired by GWire Corporation (GWire), a subsidiary of ActiveCare, Inc.  Pursuant to the acquisition agreement, GWire acquired 100% of the assets and interests of the Company.  GWire entered into employment agreements with two of the Company’s operating managers on November 1, 2012.  These two individuals were granted 27% ownership in GWire and ActiveCare, Inc. owns the remaining 73% of GWire’s interests.  The purchase price consisted of the following:

  
$2,690,181 in the form of a note payable (including imputed interest), with a 36-month term;
  
20,000 shares of ActiveCare’s Series D convertible preferred stock.

Under the purchase method of accounting, the purchase price has been preliminarily allocated to the assets purchased and liabilities assumed based on their estimated fair values as of the closing date of the acquisition.
 
9
 
 

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial information is presented to give effect to the purchase by GWire Corporation (“Gwire”), a 73% owned subsidiary of ActiveCare, Inc. (“ActiveCare”), of Green Wire, LLC, and its related entities: Green Wire Outsourcing, Inc., Orbit Medical Response, LLC and Rapid Medical Response, LLC (collectively, the “Green Wire Entities”) effective September 1, 2012. The pro forma information was prepared based on the historical financial statements of ActiveCare and the Green Wire Entities.

The unaudited pro forma condensed combined statements of operations for the fiscal year ended September 30, 2011 have been prepared by combining ActiveCare’s historical condensed statements of operations for the year ended September 30, 2011, with the historical combined statements of operations of the Green Wire Entities for the year ended December 31, 2011.  The interim unaudited pro forma condensed combined statements of operations for the nine months ended June 30, 2012 have been prepared by combining ActiveCare’s unaudited historical condensed statements of operations for the nine months ended June 30, 2012, with the unaudited historical combined statements of operations of the Green Wire Entities for the nine months ended June 30, 2012, as if the acquisition had occurred on January 1, 2011 and were carried forward through each of the aforementioned periods presented.  The unaudited pro forma condensed combined balance sheet as of June 30, 2012 assumes that the acquisition occurred on June 30, 2012.

The unaudited pro forma condensed combined balance sheet and statements of operations have been prepared for illustrative purposes only and are not intended to represent or be indicative of the results of operations in future periods or the results that actually would have been achieved had ActiveCare and the Green Wire Entities been a combined company during the respective periods presented.

These unaudited pro forma condensed combined balance sheet and statements of operations should be read in conjunction with ActiveCare’s historical financial statements and related notes included in its Annual Report on Form 10-K for the fiscal year ended September 30, 2011 and each Form 10-Q for the quarters ended December 31, 2011, March 31, 2012, and June 30, 2012, as well as the Green Wire Entities’ historical financial statements and related notes for the years ended December 31, 2011 and 2010, and for the six months ended June 30, 2012 and 2011, which are included in this Form 8-K.
 
 
1

 


UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 2012
 
   
ActiveCare, Inc.
   
Green Wire Entities
   
Pro Forma
     
Pro Forma
 
   
Historical
   
Historical
   
Adjustments
 
Notes
 
Combined
 
ASSETS
                         
                           
Current assets:
                         
Cash
  $ 76,916     $ 46,353     $ -       $ 123,269  
Accounts receivable, net
    265,414       8,323       -         273,737  
Inventories, net
    142,130       -       -         142,130  
Prepaid expenses and other
    3,340       -       -         3,340  
                                   
Total current assets
    487,800       54,676       -         542,476  
                                   
Property and equipment, net
    186,606       280,299       -         466,905  
Deposits and other assets
    29,870       17,924       -         47,794  
Domain name, net
    12,334       -       -         12,334  
Leased equipment, net
    64,841       -       -         64,841  
Patents, net
    725,508       -       -         725,508  
Intangible assets, net
    96,858       -       2,155,776  
Note 2 (a)
    2,252,634  
Goodwill
    479,305       -       -         479,305  
                                   
Total assets
  $ 2,083,122     $ 352,899     $ 2,155,776       $ 4,591,797  
                                   
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                                 
                                   
Current liabilities:
                                 
Accounts payable
  $ 669,231     $ 92,253     $ -       $ 761,484  
Accrued liabilities
    823,502       72,894       -         896,396  
Dividends payable
    40,842       -       -         40,842  
Derivative liability
    1,346,174       -       -         1,346,174  
Deferred revenue
    7,369       -       -         7,369  
Related-party note payable
    1,143,037       -       -         1,143,037  
Note payable, current portion
    1,315,778       -       745,579  
Note 2 (b)
    2,061,357  
                                   
Total current liabilities
    5,345,933       165,147       745,579         6,256,659  
                                   
Note payable, net of current portion
    -       -       1,491,158  
Note 2 (b)
    1,491,158  
                                   
Total liabilities
    5,345,933       165,147       2,236,737         7,747,817  
                                   
Commitments and contingencies
                                 
                                   
Stockholders' equity (deficit):
                                 
Preferred stock, $0.00001 par value: 10,000,000 shares authorized;
                                 
 480,000 shares of Series C and 55,000 shares of Series D
                                 
outstanding, respectively
    6       -       -         6  
Common stock, $0.00001 par value: 70,000,000 shares authorized;
                                 
45,369,771 shares outstanding
    454       -       -         454  
Common stock, $0.0229 par value: 200,000 shares authorized;
                                 
50,000 shares outstanding
    -       1,145       (1,145 )
Note 2 (c)
    -  
Additional paid-in capital
    30,124,008       1,365,217       (1,258,426 )
Note 2 (c)
    30,230,799  
Accumulated deficit
    (33,387,279 )     (1,178,610 )     1,178,610  
Note 2 (c)
    (33,387,279 )
                                   
Total stockholders' equity (deficit)
    (3,262,811 )     187,752       (80,961 )       (3,156,020 )
                                   
Total liabilities and stockholders' equity
  $ 2,083,122     $ 352,899     $ 2,155,776       $ 4,591,797  

See notes to unaudited pro forma condensed combined financial statements. 

 
2

 


UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 2012
 
   
ActiveCare, Inc.
   
Green Wire Entities
   
Pro Forma
     
Pro Forma
 
   
Historical
   
Historical
   
Adjustments
 
 Notes
 
Combined
 
                           
Revenues:
                         
Care services
  $ 190,662     $ 978,905     $ -       $ 1,169,567  
Reagents
    357,374       -       -         357,374  
Chronic illness monitoring
    233,743       -       -         233,743  
                                   
Total revenues
    781,779       978,905       -         1,760,684  
                                   
Cost of revenues:
                                 
Care services
    495,743       1,161,646       -         1,657,389  
Reagents
    291,137       -       -         291,137  
Chronic illness monitoring
    170,544       -       -         170,544  
                                   
Total cost of revenues
    957,424       1,161,646       -         2,119,070  
                                   
Gross margin (deficit)
    (175,645 )     (182,741 )     -         (358,386 )
                                   
Operating expenses:
                                 
Selling, general and administrative
    6,316,341       734,018       538,944  
Note 2 (a)
    7,589,303  
Product development and research
    112,807       -       -         112,807  
                                   
Total operating expenses
    6,429,148       734,018       538,944         7,702,110  
                                   
Loss from operations
    (6,604,793 )     (916,759 )     (538,944 )       (8,060,496 )
                                   
Other income (expense):
                                 
Loss on derivative liability
    (1,346,174 )     -       -         (1,346,174 )
Interest expense
    (459,297 )     -       (121,625 )
Note 2 (b)
    (580,922 )
Interest income
    102       -       -         102  
                                   
Total other expense
    (1,805,369 )     -       (121,625 )       (1,926,994 )
                                   
Net loss
    (8,410,162 )     (916,759 )     (660,569 )       (9,987,490 )
Dividends on preferred stock
    (40,841 )     -       -         (40,841 )
Net loss attributable to common stockholders
  $ (8,451,003 )   $ (916,759 )   $ (660,569 )     $ (10,028,331 )
                                   
Net loss per common share - basic and diluted
  $ (0.20 )                     $ (0.24 )
                                   
Weighted average common shares - basic and diluted
    41,535,000                         41,535,000  
 
See notes to unaudited pro forma condensed combined financial statements.

 
3

 


UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2011
 
   
ActiveCare, Inc.
   
Green Wire Entities
               
   
For the year ended
   
For the year ended
               
   
September 30, 2011
   
December 31, 2011
   
Pro Forma
     
Pro Forma
 
   
Historical
   
Historical
   
Adjustments
 
 Notes
 
Combined
 
                           
Revenues:
                         
Care services
  $ 333,902     $ 2,823,969     $ -       $ 3,157,871  
Reagents
    437,489       -       -         437,489  
                                   
Total revenues
    771,391       2,823,969       -         3,595,360  
                                   
Cost of revenues:
                                 
Care services
    685,729       2,096,684       -         2,782,413  
Reagents
    369,392       -       -         369,392  
                                   
Total cost of revenues
    1,055,121       2,096,684       -         3,151,805  
                                   
Gross profit (loss)
    (283,730 )     727,285       -         443,555  
                                   
Operating expenses:
                                 
Selling, general and administrative
    6,958,693       915,838       718,592  
Note 2 (a)
    8,593,123  
Product development and research
    321,245       -       -         321,245  
                                   
Total operating expenses
    7,279,938       915,838       718,592         8,914,368  
                                   
Loss from operations
    (7,563,668 )     (188,553 )     (718,592 )       (8,470,813 )
                                   
Other income (expense):
                                 
Interest expense
    (334,706 )     -       (256,517 )
Note 2 (a)
    (591,223 )
Loss on disposal of equipment
    (6,193 )     -       -         (6,193 )
Interest income
    782       -       -         782  
Impairment of investment
    (50,000 )     -       -         (50,000 )
Gain on accounts payable forgiveness
    55,072       -       -         55,072  
                                   
Total other expense
    (335,045 )     -       (256,517 )       (591,562 )
                                   
Net loss
  $ (7,898,713 )   $ (188,553 )   $ (975,109 )     $ (9,062,375 )
                                   
Net loss per common share - basic and diluted
  $ (0.27 )                     $ (0.31 )
                                   
Weighted average common shares - basic and diluted
    28,974,350                         28,974,350  
                                   

See notes to unaudited pro forma condensed combined financial statements.

 
4

 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

ActiveCare and the Green Wire Entities have different fiscal year ends with ActiveCare following a fiscal year ended on September 30 and the Green Wire Entities following a calendar year ended on December 31.  Accordingly, the unaudited pro forma condensed combined statements of operations for the year ended September 30, 2011 have been prepared by combining ActiveCare’s historical condensed statement of operations for the year ended September 30, 2011, with the historical combined statements of operations of the Green Wire Entities for the year ended December 31, 2011.  The interim unaudited pro forma condensed statements of operations for the nine months ended June 30, 2012 have been prepared by combining ActiveCare’s unaudited historical condensed statements of operations for the nine months ended June 30, 2012, with the unaudited historical combined statement of operations of the Green Wire Entities for the nine months ended June 30, 2012.  The difference in fiscal periods for ActiveCare and the Green Wire Entities is considered to be insignificant and no related adjustments have been made in the preparation of this unaudited pro forma condensed combined financial information.

1. Acquisition of Green Wire Entities

Effective September 1, 2012, GWire Corporation, a 73% owned subsidiary of ActiveCare, acquired the Green Wire Entities. Pursuant to the acquisition agreement, GWire Corporation acquired the assets and assumed certain liabilities of the Green Wire Entities.  As amended, the purchase price was comprised as follows:

 
$2,236,737 in the form of a note payable with a 36-month term, and interest imputed at 12%;
 
 
20,000 shares of ActiveCare’s Series D convertible preferred stock.

The Green Wire Entities will be operated by ActiveCare under the direction of two former executives of the Green Wire Entities.  The terms of their employment are contained in written employment agreements.  The employment agreements provide for base salary payments to each of the executives in the amount of $150,000 per year. In addition, each executive was issued a total of 2,125,000 restricted shares of GWire Corporation (representing in the aggregate approximately 27% of the outstanding shares of GWire Corporation).  These shares are subject to a voting agreement which granted to ActiveCare the right to vote the shares on all matters.  The shares are also subject to a call option for ActiveCare to require the sale of the shares to ActiveCare under certain circumstances.  Each executive was also granted an option to purchase up to 2,125,000 shares of ActiveCare’s common stock. The exercise of the option is effected by the surrender and cancellation of the shares of GWire Corporation common stock issued to the executives as described above. The contracts are for a term of two years and include restrictive covenants relating to competition and solicitation during and after termination of the executives’ employment.

Under the purchase method of accounting, the purchase price was allocated to the assets and assumed liabilities of the Green Wire Entities based on their estimated fair values as of the effective date of the acquisition.

The preliminary purchase price for the Green Wire Entities reflects total consideration transferred of $2,276,737, which has been preliminarily allocated as reflected below.  The acquired customer contracts are being amortized over three years.
 
Cash
  $ 12,215  
Accounts receivable
    13,976  
Property and equipment
    321,271  
Other assets
    16,964  
Accounts payable
    (154,206 )
Accrued expenses
    (89,259 )
Acquired customer contracts
    2,155,776  
    $ 2,276,737  
 
 
5

 

2. Pro Forma Adjustments
 
The pro forma financial information does not give effect to any synergies that may be realized as a result of the acquisition.

The unaudited pro forma condensed combined balance sheet and statements of operations reflect the effect of the following pro forma adjustments:
 
 
a.
Adjustment to record customer contracts at their fair value, and the amortization of those customer contracts over their estimated useful lives of three years;
 
 
b.
Adjustment to record the notes payable to the former owners of the Green Wire Entities of $2,236,737 (including imputed interest at 12%) and the related interest expense;
 
 
c.
Adjustment to record the increase to additional paid-in capital due to the issuance of 20,000 shares of Series D Convertible Preferred Stock and the elimination of other equity balances for the Green Wire Entities.
 
 
6