Accounting Policies (Policies)
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9 Months Ended | ||||||||||||||||||||||||
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Sep. 30, 2013
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Accounting Policies | |||||||||||||||||||||||||
Accounting Estimates |
Accounting Estimates
The Companys consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which require 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 reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management uses its best judgment in valuing these estimates and may, as warranted, solicit external professional advice and other assumptions believed to be reasonable. |
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Cash and Cash Equivalents Policy |
Cash and Cash Equivalents
For the purpose of the statements of cash flows, cash equivalents include time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. The Company maintains cash and cash equivalents balances at financial institutions and are insured by the Federal Deposit Insurance Corporation up to $250,000. At times, balances in certain bank accounts may exceed the FDIC insured limits. Cash equivalents consist of highly liquid investments with an original maturity of three months or less when purchased. At September 30, 2013, the Company did not have any cash equivalents. |
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Property and Equipment Policy |
Property and Equipment
Property and equipment consists of furniture and office equipment, and are carried at cost less allowances for depreciation and amortization. Depreciation is determined by using the straight-line method over the estimated useful lives of the related assets, generally three to five years. Repair and maintenance costs that do not improve service potential or extend the economic life of an existing fixed asset are expended as incurred. |
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Fair Value Measurements |
Fair Value Measurements
The authoritative guidance for fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or the most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. The guidance describes a fair value hierarchy based on the levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
Level 1 Quoted prices in active markets for identical assets or liabilities.
Level 2 Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or corroborated by observable market data or substantially the full term of the assets or liabilities.
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the value of the assets or liabilities.
The Companys financial instruments include cash, accounts payable, loans payable, convertible debentures, obligations to issue common stock, accrued expenses and customer deposits. All of these items were determined to be Level 1 fair value measurements.
The carrying amounts of cash and equivalents, accounts payable, loans payable, obligation to issue common stock, accrued expenses, customer deposits and short-term convertible debentures all approximate fair value because of the short maturity of these instruments. The recorded value of long-term debt approximates its fair value as the terms and rates approximate market rates. |
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Deferred Financing Costs Policy |
Deferred Financing Costs
The Company follows authoritative guidance for accounting for financing costs as it relates to convertible debt issuance cost. These costs are deferred and amortized over the term of the debt period or until redemption of the convertible debentures. Amortization of deferred financing costs amounted to $13,015 and $72,154 for the nine months ended September 30, 2013 and 2012, respectively. |
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Impairment of Long-Lived Assets |
Impairment of Long-Lived Assets
We review our long-lived assets for impairment whenever events and circumstances indicate that the carrying value of an asset might not be recoverable. An impairment loss, measured as the amount by which the carrying value exceeds the fair value, is recognized if the carrying amount exceeds estimated undiscounted future cash flows.
The Company believes its current assumptions and estimates are reasonable and appropriate; however, unanticipated events and changes in market conditions could affect such estimates, resulting in the need for an impairment charge in future periods
As described in Note 10, we acquired the assets of Wellness Indicators from Essex Angel Capital. These assets included intellectual property, including two pending patents. We valued this intellectual property at $1,391,281.
During the period ended September 30, 2013, the Company decided that the remainder of the cost of the patents related to its former product ProAlgaZyme should be written off in the amount of $6,234. The decision was based on the lack of revenue generated by this product over the course of the prior year or for the foreseeable future. |
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Revenue Recognition |
Revenue Recognition
For revenue from product sales, the Company recognizes revenue in accordance with Staff Accounting Bulletin No. 104, Revenue Recognition (SAB No. 104), which superseded Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB No. 101). SAB No. 104 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on managements judgment regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company ceased the sales of its sole product in the fourth quarter of 2011, and therefore recognized no provision for the nine months ended September 30, 2013 or September 30, 2012. |
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Shipping and Handling Costs |
Shipping and Handling Costs
Shipping and handling costs are expensed as incurred. For the nine months ended September 30, 2013 and 2012, no shipping and handling costs were incurred. |
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Research and Development Policy |
Research and Development
Research and development costs are expensed as incurred. The Company accounts for research and development expenses under two main categories:
· Research Expenses, consisting of salaries and equipment and related expenses incurred for product research studies conducted primarily within the Company and by Company personnel. Research expenses were approximately $30,351 and $102,440 for the nine months ended September 30, 2013 and 2012, respectively;
· Clinical Studies Expenses, consisting of fees, charges, and related expenses incurred in the conduct of clinical studies conducted with Company products by independent external entities. External clinical studies expenses were approximately $680,825 and $441,490 for the nine months ended September 30, 2013 and 2012, respectively. |
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Stock Based Compensation Policy |
Stock Based Compensation
We account for stock-based compensation in accordance with FASB ASC 718, Compensation Stock Compensation. Under the provisions of FASB ASC 718, stock-based compensation cost is estimated at the grant date based on the awards fair value and is recognized as expense over the requisite service period. The company generally issues grants to its employees, consultants and board members. At the date of grant, the company determines the fair value of the stock option award and recognizes compensation expense over the requisite service period. The fair value of the stock option or warrant award is calculated using the Black Scholes option pricing model.
During the nine months ended September 30, 2013 and 2012, warrants were granted to employees, directors and consultants of the Company. As a result of these grants, the Company recorded compensation expense of $360,103 and $34,935 for these periods, respectively.
The fair value of warrants was estimated on the date of grant using the Black-Scholes option-pricing model based on the following weighted average assumptions:
The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Companys employee warrants have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in managements opinion the existing models may not necessarily provide a reliable single measure of the fair value of its employee options. |
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Loss Per Share Policy |
Loss Per Share
Basic loss per share is computed by dividing the Companys net loss by the weighted average number of common shares outstanding during the period presented. Diluted loss per share is based on the treasury stock method and includes the effect from potential issuance of common stock such as shares issuable pursuant to the exercise of warrants and conversions of debentures. Potentially dilutive securities as of September 30, 2013, consisted of 39,165,972 common shares issuable upon conversion of convertible debentures and 16,320,539 common shares issuable upon exercise of outstanding warrants. Potentially dilutive securities as of September 30, 2012, consisted of 18,698,000 common shares issuable upon conversion of convertible debentures and 15,559,877 common shares issuable upon exercise of outstanding warrants. Diluted and basic weighted average shares are the same, as potentially dilutive shares are anti-dilutive. |
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Advertising / Public Relations Costs |
Advertising / Public Relations Costs
Advertising/Public Relations costs are charged to operations when incurred. These expenses were $27,551 and $22,289 for the nine months ended September 30, 2013 and 2012, respectively. |
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Concentrations of Credit Risk Policy |
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents. The Company maintains cash balances at financial institutions which exceed the current Federal Deposit Insurance Corporation (FDIC) limit of $250,000 at times during the year. |
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Reclassification, Policy |
Reclassifications
Certain reclassifications have been made to prior-year and prior period comparative financial statements to conform to the current year and period presentation. These reclassifications had no material effect on previously reported results of operations or financial position. |