Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Jun. 30, 2015 | May. 14, 2015 | |
Document And Entity Information | ||
Entity Registrant Name | VISUALANT INC | |
Entity Central Index Key | 1,074,828 | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2015 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --09-30 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | No | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 169,793,664 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2,015 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | Jun. 30, 2015 | Sep. 30, 2014 |
CURRENT ASSETS: | ||
Cash and cash equivalents | $ 47,569 | $ 70,386 |
Accounts receivable, net of allowance of $32,000 and $40,750, respectively | 672,279 | 815,460 |
Prepaid expenses | 15,326 | 25,067 |
Inventories | 269,304 | 412,831 |
Refundable tax assets | 37,967 | 29,590 |
Total current assets | 1,042,445 | 1,353,334 |
EQUIPMENT, NET | 384,361 | 447,236 |
OTHER ASSETS | ||
Intangible assets, net | 193,625 | 431,653 |
Goodwill | 983,645 | 983,645 |
Other assets | 5,070 | 5,070 |
TOTAL ASSETS | 2,609,146 | 3,220,938 |
CURRENT LIABILITIES: | ||
Accounts payable - trade | 2,453,087 | 2,234,123 |
Accounts payable - related parties | 65,096 | 66,729 |
Accrued expenses | 88,059 | 31,369 |
Accrued expenses - related parties | 1,001,563 | 260,687 |
Derivative liability - warrants | 787,768 | 2,579,157 |
Convertible notes payable | 64,000 | 166,500 |
Notes payable - current portion of long term debt | 1,149,112 | 1,290,960 |
Deferred revenue | 8,333 | 0 |
Total current liabilities | $ 5,617,018 | $ 6,629,525 |
COMMITMENTS AND CONTINGENCIES | ||
STOCKHOLDERS' DEFICIT | ||
Series A Convertible Preferred stock - $0.001 par value, 5,000,000 shares authorized, 11,667 and 0 shares issued and outstanding at 6/30/2015 and 9/30/2014, respectively | $ 12 | $ 0 |
Common stock - $0.001 par value, 100,000,000 shares authorized, 1,132,019 and 1,121,150 shares issued and outstanding at 3/31/2015 and 9/30/2014, respectively | 1,132 | 1,121 |
Additional paid in capital | 18,673,882 | 18,125,411 |
Accumulated deficit | (21,682,898) | (21,535,119) |
Total stockholders' deficit | (3,007,872) | (3,408,587) |
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ 2,609,146 | $ 3,220,938 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) | Jun. 30, 2015 | Sep. 30, 2014 |
CURRENT ASSETS: | ||
Allowance for Accounts receivable | $ 32,000 | $ 40,750 |
EQUITY (DEFICIT) | ||
Preferred stock par value | $ 0.001 | $ 0.001 |
Preferred stock shares authorized | 5,000,000 | 5,000,000 |
Preferred stock shares issued | 11,667 | 0 |
Preferred stock shares outstanding | 11,667 | 0 |
Common stock par value | $ 0.001 | $ 0.001 |
Common stock shares authorized | 100,000,000 | 100,000,000 |
Common stock shares issued | 1,132,019 | 1,121,150 |
Common stock shares outstanding | 1,132,019 | 1,121,150 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) | 3 Months Ended | 9 Months Ended | ||
Jun. 30, 2015 | Jun. 30, 2014 | Jun. 30, 2015 | Jun. 30, 2014 | |
Income Statement [Abstract] | ||||
REVENUE | $ 1,546,931 | $ 2,021,028 | $ 4,825,099 | $ 5,923,483 |
COST OF SALES | 1,291,046 | 1,709,848 | 4,041,058 | 4,965,960 |
GROSS PROFIT | 255,885 | 311,180 | 784,041 | 957,523 |
RESEARCH AND DEVELOPMENT EXPENSES | 89,097 | 165,880 | 285,627 | 570,754 |
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | 821,101 | 780,699 | 2,349,326 | 2,376,716 |
OPERATING LOSS | (654,313) | (635,399) | (1,850,912) | (1,989,947) |
OTHER INCOME (EXPENSE): | ||||
Interest expense | (17,124) | (27,316) | (138,144) | (68,438) |
Other income | 5,336 | 8,610 | 23,784 | 22,419 |
Gain on change - derivative liability warrants | 1,428,093 | 1,996,829 | 1,809,116 | 817,941 |
Total other income (expense) | 1,416,305 | 1,978,123 | 1,694,756 | 771,922 |
INCOME BEFORE INCOME TAXES | 761,992 | 1,342,724 | (156,156) | (1,218,025) |
Income taxes - current (benefit) provision | (5,288) | 3,109 | (8,377) | (2,693) |
NET INCOME | 767,280 | 1,339,615 | (147,779) | (1,215,332) |
NONCONTROLLING INTEREST | 0 | 3,109 | 0 | 23,643 |
NET INCOME ATTRIBUTABLE TO VISUALANT, INC. AND SUBSIDIARIES COMMON SHAREHOLDERS | $ 767,280 | $ 1,336,506 | $ (147,779) | $ (1,238,975) |
Basic and diluted income (loss) per common share attributable to Visualant, Inc. and subsidiaries common shareholders- | ||||
Basic and diluted income per share | $ 0.68 | $ 1.21 | $ (0.13) | $ (1.12) |
Weighted average shares of common stock outstanding- basic and diluted | 1,131,960 | 1,107,685 | 1,127,252 | 1,103,733 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 9 Months Ended | |
Jun. 30, 2015 | Jun. 30, 2014 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net loss | $ (147,779) | $ (1,215,332) |
Adjustments to reconcile net loss to net cash (used in) operating activities | ||
Depreciation and amortization | 299,493 | 288,995 |
Issuance of capital stock for services and expenses | 137,500 | 60,000 |
Issuance of warrants for services and expenses | 0 | 57,150 |
Issuance of capital stock for accrued liabilities | 0 | 160,000 |
Stock based compensation | 53,222 | 66,715 |
(Gain) on sale of assets | (20,042) | (2,636) |
(Gain) on change - derivative liability warrants | (1,809,116) | (817,941) |
Provision for losses on accounts receivable | 12,035 | 36 |
Changes in operating assets and liabilities: | ||
Accounts receivable | 131,146 | 106,766 |
Prepaid expenses | 9,741 | 24,611 |
Inventory | 143,527 | 77,187 |
Accounts payable - trade and accrued expenses | 1,040,396 | 295,620 |
Income tax receivable | (8,377) | (2,693) |
Deferred revenue | 8,333 | 0 |
CASH (USED IN) OPERATING ACTIVITIES | (149,921) | (901,522) |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Proceeds from sale of equipment | 21,452 | 3,125 |
NET CASH PROVIDED BY INVESTING ACTIVITIES: | 21,452 | 3,125 |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Repayments from line of credit | (139,558) | (267,460) |
Proceeds from sale of preferred stock | 350,000 | 0 |
Proceeds from notes payable | 0 | 200,000 |
Proceeds from notes payable- related party | 0 | 300,000 |
Repayment of convertible notes | (166,500) | 0 |
Proceeds from convertible note | 64,000 | 0 |
Repayments of capital leases | (2,290) | (2,435) |
NET CASH PROVIDED BY FINANCING ACTIVITIES | 105,652 | 230,105 |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (22,817) | (668,292) |
CASH AND CASH EQUIVALENTS, beginning of period | 70,386 | 747,129 |
CASH AND CASH EQUIVALENTS, end of period | 47,569 | 78,837 |
Supplemental disclosures of cash flow information: | ||
Interest paid | 81,257 | 35,751 |
Taxes paid | 0 | 0 |
Non-cash investing and financing activities: | ||
Gain (loss) on change - derivative liability warrants | 17,727 | 0 |
Issuance of common stock for debt conversion | $ 25,499 | $ 0 |
1. ORGANIZATION
1. ORGANIZATION | 9 Months Ended |
Jun. 30, 2015 | |
Notes to Financial Statements | |
1. ORGANIZATION | Visualant, Incorporated (the Company, Visualant, Inc. or Visualant) was incorporated under the laws of the State of Nevada in 1998.The Company has authorized 105,000,000 shares of capital stock, of which 100,000,000 are shares of voting common stock, par value $0.001 per share, and 5,000,000 are shares preferred stock, par value $0.001 per share. Since 2007 the Company has been focused primarily on the development of a proprietary technology which is capable of uniquely identifying and authenticating almost any substance using light at the photon level to detect the unique digital signature of the substance. The Company calls this its ChromaID technology. In 2010, the Company acquired TransTech Systems, Inc. as an adjunct to its business. TransTech is a distributor of products for employee and personnel identification. TransTech currently provides substantially all of the Companys revenues. The Company is in the process of commercializing its ChromaID technology. To date, the Company has entered into one License Agreement with Sumitomo Precision Products Co., Ltd. and has a strategic relationship with Invention Development Management Company, L.L.C. (IDMC). The Company believes that its commercialization success is dependent upon its ability to significantly increase the number of customers that are purchasing and using its products. To date the Company has generated minimal revenue from sales of its ChromaID products. The Company is currently not profitable. Even if the Company succeeds in introducing the ChromaID technology and related products to its target markets, the Company may not be able to generate sufficient revenue to achieve or sustain profitability. ChromaID was invented by scientists from the University of Washington under contract with Visualant. The Company has pursued an aggressive intellectual property strategy and have been granted eight patents. The Company also has 22 patents pending. The Company possess all right, title and interest to the issued patents. Ten of the pending patents are licensed exclusively to the Company in perpetuity by the Companys strategic partner, Intellectual Ventures through its subsidiary IDMC. On May 6, 2015, the Companys stockholders approved a reverse split of our common stock, in a ratio to be determined by the Companys Board of Directors, of not less than 1-for-50 nor more than 1-for-150. On June 9, 2015, the Companys Board of Directors determined that the ratio of the reverse split would be 1-for-150. All warrant, option, share and per share information in this Form 10-Q gives retroactive effect for a 1-for-150 split with all numbers rounded up to the nearest whole share. |
2. GOING CONCERN
2. GOING CONCERN | 9 Months Ended |
Jun. 30, 2015 | |
Notes to Financial Statements | |
2. GOING CONCERN | The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company incurred net losses of $1,017,281 and $6,604,631 for the years ended September 30, 2014 and 2013, respectively. Net cash used in operating activities was $(149,921) and $(1,379,397) for the nine months ended June 30, 2015 and the year ended September 30, 2014, respectively. The Company anticipates that it will record losses from operations for the foreseeable future. As of June 30, 2015, the Companys accumulated deficit was $21,682,898. The Company has limited capital resources, and operations to date have been funded with the proceeds from private equity and debt financings and loans from Ronald P. Erickson, our Chief Executive Officer, or entities with which he is affiliated. These conditions raise substantial doubt about our ability to continue as a going concern. The audit report prepared by the Companys independent registered public accounting firm relating to our financial statements for the year ended September 30, 2014 includes an explanatory paragraph expressing the substantial doubt about the Companys ability to continue as a going concern. Continuation of the Company as a going concern is dependent upon obtaining additional working capital. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. |
3. SIGNIFICANT ACCOUNTING POLIC
3. SIGNIFICANT ACCOUNTING POLICIES: ADOPTION OF ACCOUNTING STANDARDS | 9 Months Ended |
Jun. 30, 2015 | |
Notes to Financial Statements | |
3. SIGNIFICANT ACCOUNTING POLICIES: ADOPTION OF ACCOUNTING STANDARDS | Basis of Presentation The unaudited consolidated financial statements of the Company and the accompanying notes included in this Quarterly Report on Form 10-Q are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the Consolidated Financial Statements have been included. Such adjustments are of a normal, recurring nature. The Consolidated Financial Statements, and the accompanying notes, are prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and do not contain certain information included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2014. The interim Condensed Consolidated Financial Statements should be read in conjunction with that Annual Report on Form 10-K. Principles of Consolidation Cash and Cash Equivalents Accounts Receivable and Allowance for Doubtful Accounts Inventories Equipment Intangible Assets/ Intellectual Property Goodwill Long-Lived Assets Fair Value Measurements and Financial Instruments Fair Value Measurement and Disclosures Level 1 Quoted prices in active markets for identical assets and liabilities; Level 2 Inputs other than level one inputs that are either directly or indirectly observable; and Level 3 Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use. Derivative Instruments Warrants with the June 2013 Private Placement Fair Value Measurements Using Inputs Carrying Financial Instruments Level 1 Level 2 Level 3 June 30, 2015 Liabilities: Derivative Instruments - Warrants $ - $ 602,179 $ - $ 602,179 Total $ - $ 602,179 $ - $ 602,179 Liabilities measured at fair value on a recurring basis are summarized as follows: June 30, 2015 Market price and estimated fair value of common stock: $ 5.450 Exercise price $ 22.50-$30.00 Expected term (years) 2.503 Dividend yield - Expected volatility 85.2 % Risk-free interest rate 0.75 % The risk-free rate of return reflects the interest rate for the United States Treasury Note with similar time-to-maturity to that of the warrants. The Company issued warrants to purchase 697,370 shares of common stock in connection with our June 2013 private placement of 348,685 shares of common stock. The exercise price of these warrants is $22.50 to $30.00 per share. These warrants were not issued with the intent of effectively hedging any future cash flow, fair value of any asset, liability or any net investment in a foreign operation. These warrants were issued with a down-round provision whereby the exercise price would be adjusted downward in the event that additional shares of our common stock or securities exercisable, convertible or exchangeable for the Companys common stock were issued at a price less than the exercise price. Therefore, the fair value of these warrants were recorded as a liability in the consolidated balance sheet and are marked to market each reporting period until they are exercised or expire or otherwise extinguished. The proceeds from the private placement were allocated between the shares of common stock and the warrants issued in connection with the private placement based upon their estimated fair values as of the closing date at June 14, 2013, resulting in the aggregate amount of $2,494,710 allocated to stockholders equity and $2,735,290 allocated to the warrant derivative. The Company recognized $1,448,710 of other expense resulting from the increase in the fair value of the warrant liability at September 30, 2013. During the year ended September 30, 2014, the Company recognized $2,092,000 of other income resulting from the decrease in the fair value of the warrant liability at September 30, 2014. During the nine months ended June 30, 2015, the Company recognized $1,489,821 of other income resulting from the decrease in the fair value of the warrant liability at June 30, 2015. Derivative Instruments Warrant with the November 2013 IDMC Services and License Agreement Carrying Fair Value Measurements Using Inputs Amount at Financial Instruments Level 1 Level 2 Level 3 June 30, 2015 Liabilities: Derivative Instruments - Warrants $ - $ 113,396 $ - $ 113,396 Total $ - $ 113,396 $ - $ 113,396 Liabilities measured at fair value on a recurring basis are summarized as follows: June 30, 2015 Market price and estimated fair value of common stock: $ 5.45 Exercise price $ 30.00 Expected term (years) 3.36 Dividend yield - Expected volatility 85.2 % Risk-free interest rate 0.75 % The risk-free rate of return reflects the interest rate for the United States Treasury Note with similar time-to-maturity to that of the warrants. The Company issued a warrant to purchase 97,169 shares of common stock in connection with the November 2013 IDMC Services and License Agreement. The warrant price of $30.00 per share expires November 10, 2018 and the per share price is subject to adjustment. This warrant was not issued with the intent of effectively hedging any future cash flow, fair value of any asset, liability or any net investment in a foreign operation. This warrant was issued with a down-round provision whereby the exercise price would be adjusted downward in the event that additional shares of our common stock or securities exercisable, convertible or exchangeable for our common stock were issued at a price less than the exercise price. Therefore, the fair value of these warrants was recorded as a liability in the consolidated balance sheet and are marked to market each reporting period until they are exercised or expire or otherwise extinguished. During the year ended September 30, 2014, the Company recognized $320,657 of other expense related to the IDMC warrant. During the nine months ended June 30, 2015, the Company recognized $207,260 of other income related to the IDMC warrant. Derivative Instrument Convertible Note Payable Carrying Fair Value Measurements Using Inputs Amount at Financial Instruments Level 1 Level 2 Level 3 June 30, 2015 Liabilities: Derivative Instruments - Convertible Promissory Note $ - $ 6,881 $ - $ 6,881 Total $ - $ 6,881 $ - $ 6,881 Liabilities measured at fair value on a recurring basis are summarized as follows: June 30, 2015 Market price and estimated fair value of common stock: $ 5.45 Exercise price $ 5.45 Expected term (years) 0.1 Dividend yield - Expected volatility 85.2 % Risk-free interest rate 75.00 % The risk-free rate of return reflects the interest rate for the United States Treasury Note with similar time-to-maturity to that of the Convertible Note Payable. The Company entered into a Convertible Note Payable with KBM Worldwide, Inc. on August 25, 2014 for $103,500. The Note was repaid on March 2, 2015. The Company entered into a Convertible Note Payable with KBM on September 24, 2014 for $63,000. The Note was repaid March 27, 2015. The Company entered into a Convertible Note Payable with KBM on January 27, 2015 for $64,000. The KBM Note accrues interest at a rate of 8% per annum and becomes due on October 27, 2015 and is convertible into common stock on July 26, 2015. The outstanding KBM Note is convertible at 65% of the average of the lowest three day trading price in the 10 days prior to conversion; however, the outstanding KBM note is not convertible until July 26, 2015. During the year ended September 30, 2014, the Company recognized $166,500 of other expense related to the KBM Note. During the nine months ended June 30, 2015, the Company recognized $52,679 of other income and allocated $98,940 to stockholders equity related to the KBM Note. Derivative Instrument Series A Convertible Preferred Stock Carrying Fair Value Measurements Using Inputs Amount at Financial Instruments Level 1 Level 2 Level 3 June 30, 2015 Liabilities: Derivative Instruments - Warrants $ - $ 65,312 $ - $ 65,312 Total $ - $ 65,312 $ - $ 65,312 Liabilities measured at fair value on a recurring basis are summarized as follows: June 30, 2015 Market price and estimated fair value of common stock: $ 5.45 Exercise price $ 30.00-$45.00 Expected term (years) 4.25 Dividend yield - Expected volatility 85.2 % Risk-free interest rate 0.75 % The risk-free rate of return reflects the interest rate for the United States Treasury Note with similar time-to-maturity to that of the Series A Convertible Preferred Stock. The Company issued 11,667 shares of Series A Convertible Preferred Stock with attached warrants during the nine months ended June 30, 2015. The Company allocated $233,322 to stockholders equity and $116,678 to the derivative warrant liability. The warrants were issued with a down round provision. During the nine months ended June 30, 2015, the Company recognized $65,312 of other expense related to the warrant liability. The recorded value of other financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, other current assets, and accounts payable and accrued expenses approximate the fair value of the respective assets and liabilities at June 30, 2015 and September 30, 2014 based upon the short-term nature of the assets and liabilities. Revenue Recognition Stock Based Compensation Income Taxes Net Loss per Share Diluted common shares outstanding were calculated using the Treasury Stock Method for the three months ended June 30, 2015 and 2014 are as follows: June 30, 2015 June 30, 2014 Weighted average number of common shares used in basic net income per common share 1,131,960 1,107,685 Dilutive effects of outstanding stock options and warrants - - Dilutive effects of convertible preferred shares - - Weighted average number of common shares used in diluted net income per common share 1,131,960 1,107,685 Dividend Policy Use of Estimates Recent Accounting Pronouncements A variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various regulatory agencies. Due to the tentative and preliminary nature of those proposed standards, management has not determined whether implementation of such proposed standards would be material to our consolidated financial statements. |
4. DEVELOPMENT OF CHROMAID(TM)
4. DEVELOPMENT OF CHROMAID(TM) TECHNOLOGY | 9 Months Ended |
Jun. 30, 2015 | |
Notes to Financial Statements | |
4. DEVELOPMENT OF CHROMAID(TM) TECHNOLOGY | The Company is focused primarily on the development of a proprietary technology which is capable of uniquely identifying and authenticating almost any substance using light to create, record and detect the unique digital signature of the substance. The Company calls this its ChromaID technology. The Companys ChromaID Technology The ChromaID technology looks beyond visible light frequencies to areas of near infra-red and ultraviolet light that are outside the humanly visible light spectrum. The data obtained allows the Company to create a very specific and unique ChromaID signature of the substance for a myriad of authentication and verification applications. Traditional light-based identification technology, called spectrophotometry, has relied upon a complex system of prisms, mirrors and visible light. Spectrophotometers typically have a higher cost and utilize a form factor more suited to a laboratory setting and require trained laboratory personnel to interpret the information. The ChromaID technology uses lower cost LEDs and photodiodes and specific frequencies of light resulting in a more accurate, portable and easy-to-use solution for a wide variety of applications. The ChromaID technology not only has significant cost advantages as compared to spectrophotometry, it is also completely flexible is size, shape and configuration. The ChromaID scan head can range in size from endoscopic to a scale that could be the size of a large ceiling-mounted florescent light fixture. In normal operation, a ChromaID master or reference scan is generated and stored in a database. The Visualant scan head can then scan similar materials to identify, authenticate or diagnose them by comparing the new ChromaID digital signature scan to that of the original or reference ChromaID signature or scan result. The following summarizes the Companys plans for its Companys proprietary ChromaID technology. Based on the Companys anticipated expenditures on this technology, the expected efforts of its management and its relationship with Intellectual Ventures and its subsidiary, IDMC, and the Companys other strategic partner, Sumitomo Precision Products, Ltd., the Company expects its ChromaID technology to provide an increasing portion of its revenues in future years from product sales, licenses, royalties and other revenue streams., as discussed further below. ChromaID: A Foundational Platform Technology The Companys ChromaID technology provides a platform upon which a myriad of applications can be developed. As a platform technology, it is analogous to a smartphone, upon which an enormous number of previously unforeseen applications have been developed. The ChromaID technology is an enabling technology that brings the science of light and photonics to low cost, real world commercialization opportunities across multiple industries. The technology is foundational and as such, the basis upon which the Company believes a significant business can be built. As with other foundational technologies, a single application may reach across multiple industries. The ChromaID technology can, for example effectively differentiate and identify different brands of clear vodkas that appear identical to the human eye. By extension this same technology can identify pure water from water with contaminants present. It can provide real time detection of liquid medicines such as morphine that have been adulterated or compromised. It can detect if jet fuel has water contamination present. It could determine when it is time to change oil in a deep fat fryer. These are but a few of the potential applications of the ChromaID technology based upon extensions of its ability to identify different clear liquids. The cornerstone of a company with a foundational platform technology is the Companys intellectual property. ChromaID was invented by scientists from the University of Washington under contract with Visualant. The Company has pursued an aggressive intellectual property strategy and have been granted eight patents. The Company currently has 22 patents pending. The Company possesses all right, title and interest to the issued patents. Ten of the pending patents are licensed exclusively to Visualant in perpetuity by its strategic partner, IDMC. At the Photonics West trade show held in San Francisco in February 2013, the Company was honored to receive a PRISM award from the Society of Photo-Optical Instrumentation Engineers International, better known as SPIE. IDMC Relationship In November 2013, the Company entered into a strategic relationship with IDMC, a subsidiary of Intellectual Ventures, a private intellectual property fund with over $5 billion under management. Intellectual Ventures owns over 40,000 IP assets and has broad global relationships for the invention of technology, the filing of patents and the licensing of intellectual property. IDMC has worked to expand the reach and the potential application of the ChromaID technology and has filed ten patents base on the ChromaID technology, which it has licensed to the Company. In connection with IDMCs work to expand the Companys intellectual property portfolio, the Company agreed to curtail outbound marketing activities of its technology through the fourth fiscal quarter of 2014. Initial testing in the Companys laboratories and the work of the IDMC inventors have shown that the ChromaID technology has a number of broad and useful applications a few of which include: · Milk identification for quality, protein and fat content and impurities · Identification of liquids for counterfeits or contaminants · Detecting adulterants in food and food products compromising its quality · Color grading of diamonds · Identifying real cosmetics versus counterfeit cosmetics · Identifying counterfeit medications versus real medications · Identifying regular flour versus gluten free flour · Authenticating secure identification cards Products The Company first delivered product, the ChromaID Lab Kit, scans and identifies solid surfaces. The Company is marketing this product to customers who are considering licensing the technology. Target markets include, but are not limited to, commercial paint manufacturers, pharmaceutical equipment manufacturers, process control companies, currency paper and ink manufacturers, security cards, cosmetic companies, scanner manufactures and food processing companies. The Companys second product, the ChromaID Liquid Lab Kit, scans and identifies liquids. This product is currently in prototype form. Similar to the Companys first product, it will be marketed to customers who are considering licensing the technology. Rather than use an LED emitter to reflect light off of a surface that is captured by a photodiode to generate a ChromaID signature the liquid analysis product shines light through the liquid (transmissive) with the LEDs positioned on one side of the liquid sample and the photo detectors on the opposite side. This device is in a functional state in our laboratory and the Company anticipates having a Liquid ChromaID Lab Kit available for customers by the Company during the fall of 2015. Target markets include, but are not limited to, water companies, petrochemical companies, pharmaceutical companies, and numerous consumer applications. The ChromaID Lab Kits allows potential licensors of our technology to work with our technology and develop solutions for their particular application. Our contractual arrangements with IDMC are described in greater detail below. Our Commercialization Plans for the ChromaID Technology. The Lab Kit includes the following: ChromaID Scanner ChromaID Lab Software Software Development Toolkit · Sales of the ChromaID Lab Kit and ChromaID Liquid Lab Kit · Non Recurring Engineering (NRE) fees to assist customers with scan integration into their products · Licensing of the ChromaID technology · Royalties per unit generated from the sales of scan heads · Per click transaction revenue from accessing the unique ChromaID signatures · Developing custom product applications for customers · ChromaID database administration and management services The Companys Acceleration of Business Development in the United States and Around the World There is no requirement for FDA or other government approval for the current applications of our ChromaID technology. Over time, as the Company explores the application of its ChromaID technology for medical diagnostics and other applications, the Company expects that there will be requirements for FDA and other government approvals before applications using the technology in medical and other regulated fields can enter the marketplace. Research and Development The Companys research and development efforts are primarily focused improving the core foundational ChromaID technology and developing new and unique applications for the technology. As part of this effort, the Company typically conduct testing to ensure that ChromaID application methods are compatible with the customers requirements, and that they can be implemented in a cost effective manner. The Company is also actively involved in identifying new application methods. Visualants team has considerable experience working with the application of light-based technologies and their application to various industries. The Company believes that its continued development of new and enhanced technologies relating to our core business is essential to its future success. The Company spent $285,627 during the nine months ended September 30, 2015, $1,169,281 for the year ended September 30, 2013 and $670,742 for the year ended September 30, 2014 on research and development activities. The Companys research and development efforts are supported internally, through its relationship with IDMC and through contractors led by Dr. Tom Furness and his team at RATLab LLC. The Companys Patents The Company believes that its eight patents, 22 patent applications, and two registered trademarks, and our trade secrets, copyrights and other intellectual property rights are important assets. The Companys patents will expire at various times between 2027 and 2033. The duration of the Companys trademark registrations varies from country to country. However, trademarks are generally valid and may be renewed indefinitely as long as they are in use and/or their registrations are properly maintained. The patents that have been granted to Visualant include: On August 9, 2011, the Company was issued US Patent No. 7,996,173 B2 entitled Method, Apparatus and Article to Facilitate Distributed Evaluation of Objects Using Electromagnetic Energy, by the United States Office of Patents and Trademarks. The patent expires August 24, 2029. On December 13, 2011, the Company was issued US Patent No. 8,076,630 B2 entitled System and Method of Evaluating an Object Using Electromagnetic Energy by the United States Office of Patents and Trademarks. The patent expires November 7, 2028. On December 20, 2011, the Company was issued US Patent No. 8,081,304 B2 entitled Method, Apparatus and Article to Facilitate Evaluation of Objects Using Electromagnetic Energy by the United States Office of Patents and Trademarks. The patent expires July 28, 2030. On October 9, 2012, the Company was issued US Patent No. 8,285,510 B2 entitled Method, Apparatus, and Article to Facilitate Distributed Evaluation of Objects Using Electromagnetic Energy by the United States Office of Patents and Trademarks. The patent expires July 31, 2027. On February 5, 2013, the Company was issued US Patent No. 8,368,878 B2 entitled Method, Apparatus and Article to Facilitate Evaluation of Objects Using Electromagnetic Energy by the United States Office of Patents and Trademarks. The patent expires July 31, 2027. On November 12, 2013, the Company was issued US Patent No. 8,583,394 B2 entitled Method, Apparatus and Article to Facilitate Distributed Evaluation of Objects Using Electromagnetic Energy by the United States Office of Patents and Trademarks. The patent expires July 31, 2027. On November 21, 2014, the Company was issued US Patent No. 8,888,207 B2 entitled Systems, Methods, and Articles Related to Machine-Readable Indicia and Symbols by the United States Office of Patents and Trademarks. The patent expires February 7, 2033. On March 23, 2015, the Company was issued US Patent No. 8,988,666 B2 entitled Method, Apparatus, and Article to Facilitate Evaluation of Objects Using Electromagnetic Energy by the United States Office of Patents and Trademarks. The patent expires July 31, 2027. The Company pursues an aggressive patent strategy to expand its unique intellectual property in the United States and other countries. Services and License Agreement Invention Development Management Company, L.L.C. In November 2013, the Company entered into a Services and License Agreement with IDMC. IDMC is affiliated with Intellectual Ventures, which collaborates with inventors and partners with pioneering companies and invests both expertise and capital in the process of invention. On November 19, 2014, the Company amended the Services and License Agreement with IDMC. This amendment exclusively licenses 10 filed patents to us. The agreement requires IDMC to identify and engage inventors to develop new applications of Visualants ChromaID technology, present the developments to us for approval, and file at least 10 patent applications to protect the developments. IDMC is responsible for the development and patent costs. The Company provided the Chroma ID Lab Kits to IDMC at no cost and are providing ongoing technical support. In addition, to provide time for this accelerated expansion of its intellectual property the Company delayed the selling of the ChromaID Lab Kits for 140 days except for certain select accounts. The Company continued its business development efforts during this period and have worked with IDMC and their global business development resources to secure potential customers and licensees for the ChromaID technology. The Company shipped 20 ChromaID Lab Kits to inventors in the IDMC network during December 2013 and January 2014. As part of the agreement with IDMC, the Company curtailed its ChromaID marketing efforts through the fourth calendar quarter of 2014 while IDMC worked to expand our intellectual property portfolio. Thereafter, the Company began to actively market the ChromaID Lab Kits to interested and qualified customers. The Company has received a worldwide, nontransferable, exclusive license to the intellectual property developed under the IDMC agreement during the term of the agreement, and solely within the identification, authentication and diagnostics field of use, to (a) make, have made, use, import, sell and offer for sale products and services; (b) make improvements; and (c) grant sublicenses of any and all of the foregoing rights (including the right to grant further sublicenses). The Company received a nonexclusive and nontransferable option to acquire a worldwide, nontransferable, nonexclusive license to the useful intellectual property held by IDMC within the identification, authentication and diagnostics field of use to (a) make, have made, use, import, sell and offer to sell products and services and (b) grant sublicenses to any and all of the foregoing rights. The option to acquire this license may be exercised for up to two years from the effective date of the Agreement. IDMC is providing global business development services to us for geographies not being pursued by Visualant. Also, IDMC has introduced the Company to potential customers, licensees and distributors for the purpose of identifying and pursuing a license, sale or distribution arrangement or other monetization event. The Company granted to IDMC a nonexclusive, worldwide, fully paid, nontransferable, sublicenseable, perpetual license to our intellectual property solely outside the identification, authentication and diagnostics field of use to (a) make, have made, use, import, sell and offer for sale products and services and (b) grant sublicenses of any and all of the foregoing rights (including the right to grant further sublicenses). The Company granted to IDMC a nonexclusive, worldwide, fully paid up, royalty-free, nontransferable, non-sublicenseable, perpetual license to access and use the Companys technology solely for the purpose of marketing the aforementioned sublicenses of our intellectual property to third parties outside the designated fields of use. In connection with the original license agreement, the Company issued a warrant to purchase 97,169 shares of common stock to IDMC as consideration for the exclusive intellectual property license and application development services. The warrant has an exercise price of $30.00 per share and expires November 10, 2018. The per share price is subject to adjustment based on any issuances below $30.00 per share except as described in the warrant. The Company agreed to pay IDMC a percentage of license revenue for the global development business services and a percentage of revenue received from any company introduced to us by IDMC. The Company also have also agreed to pay IDMC a royalty when the Company receives royalty product revenue from an IDMC-introduced company. IDMC has agreed to pay the Company a license fee for the nonexclusive license of the Companys intellectual property. The term of both the exclusive intellectual property license and the nonexclusive intellectual property license commences on the effective date of November 11, 2013, and terminates when all claims of the patents expire or are held in valid or unenforceable by a court of competent jurisdiction from which no appeal can be taken. The term of the Agreement commences on the effective date until either party terminates the Agreement at any time following the fifth anniversary of the effective date by providing at least ninety days prior written notice to the other party. |
5. AGREEMENTS WITH SUMITOMO PRE
5. AGREEMENTS WITH SUMITOMO PRECISION PRODUCTS CO., LTD. | 9 Months Ended |
Jun. 30, 2015 | |
Notes to Financial Statements | |
5. AGREEMENTS WITH SUMITOMO PRECISION PRODUCTS CO., LTD. | In May 2012, the Company entered into a Joint Research and Product Development Agreement (the Joint Development Agreement) with Sumitomo Precision Products Co., Ltd., a publicly-traded Japanese corporation, for the commercialization of our ChromaID technology. In March 2013, the Company entered into an amendment to this agreement, which extended the Joint Development Agreement from March 31, 2013 to December 31, 2013. The extension provided for continuing work between Sumitomo and Visualant focused on advancing the ChromaID technology and market research aimed at identifying the most significant markets for the ChromaID technology. This agreement expired December 31, 2013. This collaborative work supported the development of the ChromaID Lab Kit. The current version of the technology was introduced to the marketplace as a part of our ChromaID Lab Kit during the fourth quarter of 2013. The Company also entered into a License Agreement with Sumitomo in May 2012 which provides for an exclusive license for the then-extant ChromaID technology. The territories covered by this license include Japan, China, Taiwan, Korea and the entirety of Southeast Asia (Burma, Indonesia, Thailand, Cambodia, Laos, Vietnam, Singapore and the Philippines). On May 21, 2015, the Company entered into an amendment to the License Agreement, which, effective as of June 18, 2014, eliminates the Sumitomo exclusivity and provides that if the Company sells products in certain territories Japan, China, Taiwan, Korea and the entirety of Southeast Asia (Burma, Indonesia, Thailand, Cambodia, Laos, Vietnam, Singapore and the Philippines) the Company will pay Sumitomo a royalty rate of 2% of net sales (excluding non-recurring engineering revenues) over the remaining term of the five-year License Agreement (through May 2017). |
6. ACQUISITION OF TRANSTECH SYS
6. ACQUISITION OF TRANSTECH SYSTEMS, INC. | 9 Months Ended |
Jun. 30, 2015 | |
Notes to Financial Statements | |
6. ACQUISITION OF TRANSTECH SYSTEMS, INC. | The Companys wholly owned subsidiary, TransTech Systems, Inc., is a distributor of products, including systems solutions, components and consumables, for employee and personnel identification in government and the private sector, document authentication, access control, and radio frequency identification. TransTech provides these products and services, along with marketing and business development assistance to value-added resellers and system integrators throughout North America. |
7. ACCOUNTS RECEIVABLE_CUSTOMER
7. ACCOUNTS RECEIVABLE/CUSTOMER CONCENTRATION | 9 Months Ended |
Jun. 30, 2015 | |
Notes to Financial Statements | |
7. ACCOUNTS RECEIVABLE/CUSTOMER CONCENTRATION | Accounts receivable were $672,279 and $815,460, net of allowance, as of June 30, 2015 and September 30, 2014, respectively. The Company had one customer (11.1%) in excess of 10% of our consolidated revenues for the nine months ended June 30, 2015. The Company had two customers (17.5% and 10.1%) with accounts receivable in excess of 10% as of June 30, 2015. The Company does expect to have customers with consolidated revenues or accounts receivable balances of 10% of total accounts receivable in the foreseeable future. |
8. INVENTORIES
8. INVENTORIES | 9 Months Ended |
Jun. 30, 2015 | |
Notes to Financial Statements | |
8. INVENTORIES | Inventories were $269,304 and $412,831 as of June 30, 2015 and September 30, 2014, respectively. Inventories consist primarily of printers and consumable supplies, including ribbons and cards, badge accessories, capture devices, and access control components held for resale. There is a $15,000 and $10,000 reserve for impaired inventory as of June 30, 2015 and September 30, 2014, respectively. |
9. FIXED ASSETS
9. FIXED ASSETS | 9 Months Ended |
Jun. 30, 2015 | |
Notes to Financial Statements | |
9. FIXED ASSETS | Fixed assets, net of accumulated depreciation, was $384,361 and $447,236 as of June 30, 2015 and September 30, 2014, respectively. Accumulated depreciation was $785,594 and $742,676 as of June 30, 2015 and September 30, 2014, respectively. Total depreciation expense, was $61,727 and $26,681 for the nine months ended June 30, 2015 and 2014, respectively. All equipment is used for selling, general and administrative purposes and accordingly all depreciation is classified in selling, general and administrative expenses. Property and equipment as of June 30, 2015 was comprised of the following: Estimated June 30, 2015 Useful Lives Purchased Capital Leases Total Machinery and equipment 2-10 years $ 192,374 $ 87,038 $ 279,412 Leasehold improvements 5-20 years 603,612 - 603,612 Furniture and fixtures 3-10 years 77,039 101,260 178,299 Software and websites 3- 7 years 63,783 44,849 108,632 Less: accumulated depreciation (552,508 ) (233,086 ) (785,594 ) $ 384,300 $ 61 $ 384,361 |
10. INTANGIBLE ASSETS
10. INTANGIBLE ASSETS | 9 Months Ended |
Jun. 30, 2015 | |
Notes to Financial Statements | |
10. INTANGIBLE ASSETS | Intangible assets as of June 30, 2015 and September 30, 2014 consisted of the following: Estimated June 30, September 30, Useful Lives 2015 2014 Customer contracts 5 years $ 983,645 $ 983,645 Technology 5 years 712,500 712,500 Less: accumulated amortization (1,502,520 ) (1,264,492 ) Intangible assets, net $ 193,625 $ 431,653 Total amortization expense was $238,028 and $254,482 for the nine months ended June 30, 2015 and 2014, respectively. The fair value of the TransTech intellectual property acquired was $983,645, estimated by using a discounted cash flow approach based on future economic benefits associated with agreements with customers, or through expected continued business activities with its customers. In summary, the estimate was based on a projected income approach and related discounted cash flows over five years, with applicable risk factors assigned to assumptions in the forecasted results. The TransTech intellectual property was fully amortized as of June 30, 2015. The fair value of the RATLab intellectual property associated with the assets acquired was $450,000 estimated by using a discounted cash flow approach based on future economic benefits. In summary, the estimate was based on a projected income approach and related discounted cash flows over five years, with applicable risk factors assigned to assumptions in the forecasted results. The fair value of the Javelin intellectual property acquired was $262,500 estimated by using a discounted cash flow approach based on future economic benefits associated with the assets acquired. In summary, the estimate was based on a projected income approach and related discounted cash flows over five years, with applicable risk factors assigned to assumptions in the forecasted results. |
11. ACCOUNTS PAYABLE
11. ACCOUNTS PAYABLE | 9 Months Ended |
Jun. 30, 2015 | |
Notes to Financial Statements | |
11. ACCOUNTS PAYABLE | Accounts payable were $2,453,087 and $2,234,123 as of June 30, 2015 and September 30, 2014, respectively. Such liabilities consisted of amounts due to vendors for inventory purchases and technology development, external audit, legal and other expenses incurred by the Company. The Company had two vendors (23.1% and 13.3%) with accounts payable in excess of 10% of its accounts payable as of June 30, 2015. The Company does expect to have vendors with accounts payable balances of 10% of total accounts payable in the foreseeable future. |
12. CONVERTIBLE NOTES PAYABLE
12. CONVERTIBLE NOTES PAYABLE | 3 Months Ended |
Jun. 30, 2015 | |
Convertible Notes Payable | |
12. CONVERTIBLE NOTES PAYABLE | The Company entered into a Convertible Note Payable with KBM Worldwide, Inc. on August 25, 2014 for $103,500. The Note was paid off on March 2, 2015. The Company entered into a Convertible Note Payable with KBM on September 24, 2014 for $63,000. The Note was repaid March 27, 2015. The Company entered into a Convertible Note Payable with KBM on January 27, 2015 for $64,000. The KBM Note accrues interest at a rate of 8% per annum and becomes due on October 27, 2015 and is convertible into common stock on July 26, 2015. The outstanding KBM Note is convertible at 65% of the average of the lowest three day trading price in the 10 days prior to conversion; however, the outstanding KBM note is not convertible until July 26, 2015. During the year ended September 30, 2014, the Company recognized $166,500 of other expense related to the KBM Note. During the nine months ended June 30, 2015, the Company recognized $29,529 of other income and allocated $98,940 to stockholders equity related to the KBM Note. The Company recorded accrued interest of $898 as of June 30, 2015. |
13. NOTES PAYABLE, CAPITALIZED
13. NOTES PAYABLE, CAPITALIZED LEASES AND LONG TERM DEBT | 9 Months Ended |
Jun. 30, 2015 | |
Notes to Financial Statements | |
13. NOTES PAYABLE, CAPITALIZED LEASES AND LONG TERM DEBT | Notes payable, capitalized leases and long term debt as of June 30, 2015 and September 30, 2014 consisted of the following: June 30, September 30, 2015 2014 Capital Source Business Finance Group $ 348,840 $ 488,398 Note payable to Umpqua Bank 200,000 200,000 Secured note payable to J3E2A2Z LP - related party 600,000 600,000 TransTech capitalized leases, net of capitalized interest 272 2,562 Total debt 1,149,112 1,290,960 Less current portion of long term debt (1,149,112 ) (1,290,960 ) Long term debt $ - $ - Capital Source Business Finance Group Secured Credit Facility The Company finances its TransTech operations from operations and a Secured Credit Facility with Capital Source Note Payable to Umpqua Bank The Company has a $200,000 Business Loan Agreement with Umpqua Bank (the Umpqua Loan), which currently matures on December 31, 2015 and provides for interest at 3.25% per year. The cash from the Umpqua Loan was received on January 14, 2014. Related to this Umpqua Loan, the Company entered into a demand promissory note for $200,000 on January 10, 2014 with an entity affiliated with Ronald P. Erickson, our Chief Executive Officer. This demand promissory note will be effective in case of a default by the Company under the Umpqua Loan. The Company recorded accrued interest of $7,315 as of June 30, 2015. Note Payables to Ronald P. Erickson or J3E2A2Z LP The Company also has two other demand promissory notes payable to entities affiliated with Mr. Erickson, totaling $600,000. Each of these notes were issued between January and July 2014, provide for interest of 3% per year and now mature on September 30, 2015. They also provide for a second lien on our assets if not repaid by September 30, 2015 or converted into convertible debentures or equity on terms acceptable to the Mr. Erickson. The Company recorded accrued interest of $15,337 as of June 30, 2015. Capitalized Leases TransTech has capitalized leases for equipment. The leases have a remaining lease term of one month. The imputed interest rate in the capitalized leases is approximately 10.5%. Aggregate maturities totaling $1,149,112 are all due within twelve months. |
14. EQUITY
14. EQUITY | 9 Months Ended |
Jun. 30, 2015 | |
Notes to Financial Statements | |
14. EQUITY | Voting Preferred Stock On September 13, 2002, 333,334 shares of preferred stock with a par value of $0.001 were authorized by the stockholders. There were no preferred shares issued and the terms had not been determined as of September 30, 2014. On January 23, 2015 and February 23, 2015, respectively, the Board of Directors and the Nevada Secretary of State approved a Certificate of Designations, Preference and Rights for Series A Convertible Preferred Stock. The Companys Series A Preferred is $0.001 par value, with 333,334 shares authorized. Each holder of outstanding shares of Series A Preferred shall be entitled to the number of votes equal to the number of whole shares of common stock of the Corporation into which the shares of Series A Preferred held by such holder are then convertible as of the applicable record date. The Company cannot not amend, alter or repeal any preferences, rights, or other terms of the Series A Preferred so as to adversely affect the Series A Preferred, without the written consent or affirmative vote of the holders of at least sixty-six and two-thirds percent (66.66%) of the then outstanding shares of Series A Preferred, voting as a separate voting group, given by written consent or by vote at a meeting called for such purpose for which notice shall have been duly given to the holders of the Series A Preferred. During the nine months ended June 30, 2015, the Company sold 11,667 Series A Preferred Stock to two investors totaling $350,000. These shares are expected to be convertible into 11,667 shares of common stock at $30.00 per share, subject to adjustment, for a period of five years. The Company and the holders of the Series A Preferred Stock are in the process of amending the conversion price to $30.00 per share, subject to adjustment upon the occurrence of certain events. The Series A Preferred Stock has voting rights and may not be redeemed without the consent of the holder. The Company also issued (i) a Series C five-year Warrant for 23,334 shares of common stock at an exercise price of $30.00 per share, which is callable at $60.00 per share; and (ii) a Series D five-year Warrant for 23,334 shares of common stock at an exercise price of $45.00 per share, which is callable at $90.00 per share. The Series A Preferred Stock and Series C and D Warrants have registration rights. Common Stock All of the offerings and sales described below were deemed to be exempt under Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act. No advertising or general solicitation was employed in offering the securities, the offerings and sales were made to a limited number of persons, all of whom were accredited investors and transfer was restricted by the company in accordance with the requirements of Regulation D and the Securities Act. All issuances to accredited and non-accredited investors were structured to comply with the requirements of the safe harbor afforded by Rule 506 of Regulation D, including limiting the number of non-accredited investors to no more than 35 investors who have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of an investment in our securities. The following equity issuances occurred during the nine months ended June 30, 2015: On December 14, 2014, the Company entered into an Advisory Agreement with Lester Garfinkel for financial consulting services. Under the Advisory Agreement, Mr. Garfinkel was awarded 167 shares of our common stock. The shares were valued at $30.00 per share by the parties. The Company expensed $25,000 during the nine months ended June 30, 2015. On January 23, 2015, the Company issued 9,002 shares of restricted common stock to seven employees and directors for services during 2014. The shares were issued in accordance with the 2011 Stock Incentive Plan and were valued at $15.00 per share, the market price of our common stock. The Company expensed $135,000 during the nine months ended June 30, 2015. On February 23, 2015, the Company issued 17,000 shares of common stock to NVPR LLC related to a conversion under a 7% Convertible Debenture. On April 24, 2015, the Company filed a registration statement on Form S-1 to register $10 million of Company securities. The Company has applied for listing of the Companys common stock and the warrants on The NASDAQ Capital Market. On May 6, 2015, the Companys stockholders approved a reverse split of our common stock, in a ratio to be determined by the Companys Board of Directors, of not less than 1-for-50 nor more than 1-for-150. On June 9, 2015, the Companys Board of Directors determined that the ratio of the reverse split would be 1-for-150. All warrant, option, share and per share information in this Form 10-Q gives retroactive effect for a 1-for-150 split with all numbers rounded up to the nearest whole share. Warrants to Purchase Common Stock The following warrant issuances occurred during the nine months ended June 30, 2015: The Company issued (i) a Series C five-year Warrant for 23,334 shares of common stock at an exercise price of $30.00 per share, which is callable at $60.00 per share; and (ii) ) a Series D five-year Warrant for 23,334 shares of common stock at an exercise price of $45.00 per share, which is callable at $90.00 per share. A summary of the warrants issued as of June 30, 2015 were as follows: June 30, 2015 Weighted Average Exercise Shares Price Outstanding at beginning of period 857,083 $ 26.280 Issued 46,667 37.50 Exercised - - Forfeited - - Expired (4,000 ) 15.00 Outstanding at end of period 899,750 $ 26.86 Exerciseable at end of period 899,750 A summary of the status of the warrants outstanding as of June 30, 2015 is presented below: June 30, 2015 Weighted Weighted Weighted Average Average Average Number of Remaining Exercise Shares Exercise Warrants Life ( In Years) Price Exerciseable Price 38,205 2.49 $ 19.50-22.50 38,205 $ 19.50-22.50 348,685 2.63 22.50 348,685 22.50 489,526 2.78 30.00 489,526 30.00 23,334 4.12 45.00 23,334 45.00 899,750 2.78 $ 26.86 899,750 $ 26.86 The significant weighted average assumptions relating to the valuation of the Companys warrants for the period ended June 30, 2015 were as follows: Dividend yield 0% Expected life 3 Expected volatility 90% Risk free interest rate 0.7% There were vested warrants of 899,750 as of June 30, 2015 with an aggregate intrinsic value of $0. |
15. STOCK OPTIONS
15. STOCK OPTIONS | 9 Months Ended |
Jun. 30, 2015 | |
Notes to Financial Statements | |
15. STOCK OPTIONS | Voting Preferred Stock On September 13, 2002, 333,334 shares of preferred stock with a par value of $0.001 were authorized by the stockholders. There were no preferred shares issued and the terms had not been determined as of September 30, 2014. On January 23, 2015 and February 23, 2015, respectively, the Board of Directors and the Nevada Secretary of State approved a Certificate of Designations, Preference and Rights for Series A Convertible Preferred Stock. The Companys Series A Preferred is $0.001 par value, with 333,334 shares authorized. Each holder of outstanding shares of Series A Preferred shall be entitled to the number of votes equal to the number of whole shares of common stock of the Corporation into which the shares of Series A Preferred held by such holder are then convertible as of the applicable record date. The Company cannot not amend, alter or repeal any preferences, rights, or other terms of the Series A Preferred so as to adversely affect the Series A Preferred, without the written consent or affirmative vote of the holders of at least sixty-six and two-thirds percent (66.66%) of the then outstanding shares of Series A Preferred, voting as a separate voting group, given by written consent or by vote at a meeting called for such purpose for which notice shall have been duly given to the holders of the Series A Preferred. During the nine months ended June 30, 2015, the Company sold 11,667 Series A Preferred Stock to two investors totaling $350,000. These shares are expected to be convertible into 11,667 shares of common stock at $30.00 per share, subject to adjustment, for a period of five years. The Company and the holders of the Series A Preferred Stock are in the process of amending the conversion price to $30.00 per share, subject to adjustment upon the occurrence of certain events. The Series A Preferred Stock has voting rights and may not be redeemed without the consent of the holder. The Company also issued (i) a Series C five-year Warrant for 23,334 shares of common stock at an exercise price of $30.00 per share, which is callable at $60.00 per share; and (ii) a Series D five-year Warrant for 23,334 shares of common stock at an exercise price of $45.00 per share, which is callable at $90.00 per share. The Series A Preferred Stock and Series C and D Warrants have registration rights. Common Stock All of the offerings and sales described below were deemed to be exempt under Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act. No advertising or general solicitation was employed in offering the securities, the offerings and sales were made to a limited number of persons, all of whom were accredited investors and transfer was restricted by the company in accordance with the requirements of Regulation D and the Securities Act. All issuances to accredited and non-accredited investors were structured to comply with the requirements of the safe harbor afforded by Rule 506 of Regulation D, including limiting the number of non-accredited investors to no more than 35 investors who have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of an investment in our securities. The following equity issuances occurred during the nine months ended June 30, 2015: On December 14, 2014, the Company entered into an Advisory Agreement with Lester Garfinkel for financial consulting services. Under the Advisory Agreement, Mr. Garfinkel was awarded 167 shares of our common stock. The shares were valued at $30.00 per share by the parties. The Company expensed $25,000 during the nine months ended June 30, 2015. On January 23, 2015, the Company issued 9,002 shares of restricted common stock to seven employees and directors for services during 2014. The shares were issued in accordance with the 2011 Stock Incentive Plan and were valued at $15.00 per share, the market price of our common stock. The Company expensed $135,000 during the nine months ended June 30, 2015. On February 23, 2015, the Company issued 17,000 shares of common stock to NVPR LLC related to a conversion under a 7% Convertible Debenture. On April 24, 2015, the Company filed a registration statement on Form S-1 to register $10 million of Company securities. The Company has applied for listing of the Companys common stock and the warrants on The NASDAQ Capital Market. On May 6, 2015, the Companys stockholders approved a reverse split of our common stock, in a ratio to be determined by the Companys Board of Directors, of not less than 1-for-50 nor more than 1-for-150. On June 9, 2015, the Companys Board of Directors determined that the ratio of the reverse split would be 1-for-150. All warrant, option, share and per share information in this Form 10-Q gives retroactive effect for a 1-for-150 split with all numbers rounded up to the nearest whole share. Warrants to Purchase Common Stock The following warrant issuances occurred during the nine months ended June 30, 2015: The Company issued (i) a Series C five-year Warrant for 23,334 shares of common stock at an exercise price of $30.00 per share, which is callable at $60.00 per share; and (ii) ) a Series D five-year Warrant for 23,334 shares of common stock at an exercise price of $45.00 per share, which is callable at $90.00 per share. A summary of the warrants issued as of June 30, 2015 were as follows: June 30, 2015 Weighted Average Exercise Shares Price Outstanding at beginning of period 857,083 $ 26.280 Issued 46,667 37.50 Exercised - - Forfeited - - Expired (4,000 ) 15.00 Outstanding at end of period 899,750 $ 26.86 Exerciseable at end of period 899,750 A summary of the status of the warrants outstanding as of June 30, 2015 is presented below: June 30, 2015 Weighted Weighted Weighted Average Average Average Number of Remaining Exercise Shares Exercise Warrants Life ( In Years) Price Exerciseable Price 38,205 2.49 $ 19.50-22.50 38,205 $ 19.50-22.50 348,685 2.63 22.50 348,685 22.50 489,526 2.78 30.00 489,526 30.00 23,334 4.12 45.00 23,334 45.00 899,750 2.78 $ 26.86 899,750 $ 26.86 The significant weighted average assumptions relating to the valuation of the Companys warrants for the period ended June 30, 2015 were as follows: Dividend yield 0% Expected life 3 Expected volatility 90% Risk free interest rate 0.7% There were vested warrants of 899,750 as of June 30, 2015 with an aggregate intrinsic value of $0. |
16. OTHER SIGNIFICANT TRANSACTI
16. OTHER SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES | 9 Months Ended |
Jun. 30, 2015 | |
Notes to Financial Statements | |
16. OTHER SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES | Related Party Transactions with Ronald P. Erickson See Note 13 for Notes Payable to Ronald P. Erickson, our Chief Executive Officer Chief and/or entities in which Mr. Erickson has a beneficial interest. The Company has a $200,000 Business Loan Agreement with Umpqua Bank (the Umpqua Loan), which currently matures on December 31, 2015 and provides for interest at 3.25% per year. The cash from the Umpqua Loan was received on January 14, 2014. Related to this Umpqua Loan, the Company entered into a demand promissory note for $200,000 on January 10, 2014 with an entity affiliated with Ronald P. Erickson, our Chief Executive Officer. This demand promissory note will be effective in case of a default by the Company under the Umpqua Loan. The Company also has two other demand promissory notes payable to entities affiliated with Mr. Erickson, totaling $600,000. Each of these notes were issued between January and July 2014, provide for interest of 3% per year and now mature on September 30, 2015. They also provide for a second lien on our assets if not repaid by September 30, 2015 or converted into convertible debentures or equity on terms acceptable to the Mr. Erickson. Mr. Erickson and/or entities with which he is affiliated also have advanced approximately $638,500 and have unreimbursed expenses and compensation of approximately $289,800. As a result, the Company currently owes Mr. Erickson, or entities with which he is affiliated, approximately $1,528,300 as of June 30, 2015. |
17. COMMITMENTS, CONTINGENCIES
17. COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS | 9 Months Ended |
Jun. 30, 2015 | |
Notes to Financial Statements | |
17. COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS | Legal Proceedings The Company may from time to time become a party to various legal proceedings arising in the ordinary course of our business. The Company is currently not a party to any pending legal proceeding that is not ordinary routine litigation incidental to our business. Properties and Operating Leases The Company is obligated under various non-cancelable operating leases for its various facilities and certain equipment. Corporate Offices The Companys executive office is located at 500 Union Street, Suite 420, Seattle, Washington, USA, 98101. The Company leases 2,244 square feet and its net monthly payment is $2,535. The Company leases this office on a month to month basis. TransTech Facilities TransTech is located at 12142 NE Sky Lane, Suite 130, Aurora, OR 97002. TransTech leases a total of approximately 9,750 square feet of office and warehouse space for its administrative offices, product inventory and shipping operations. In March 2011, the lease was extended for a five year term at a monthly rental of $4,751. There are two additional five year renewals available with a set accelerating increase of 10% per 5 year term. The aggregate future minimum lease payments under operating leases as of June 30, 2015 were $40,583. |
18. SUBSEQUENT EVENTS
18. SUBSEQUENT EVENTS | 9 Months Ended |
Jun. 30, 2015 | |
Subsequent Events [Abstract] | |
18. SUBSEQUENT EVENTS | The Company evaluates subsequent events, for the purpose of adjustment or disclosure, up through the date the financial statements are available. Subsequent to June 30, 2015, there were the following material transactions that require disclosure: On July 1, 2015, the Company received commitments from debtors to convert $903,000 into common stock of the Company as part of the Companys proposed listing on The NASDAQ Capital Market. These conversions are expected to increase stockholders equity by $903,000. On July 15, 2015, the Company entered into amendments to two demand promissory notes, totaling $600,000, and an note payable for $200,000 related to the Umpqua Bank Business Loan Agreement with Mr. Erickson, our Chief Executive Officer and/or entities in which Mr. Erickson has a beneficial interest. The amendments extend the due date from June 30, 2015 to September 30, 2015 and continue to provide for interest of 3% per annum and a second lien on company assets if not repaid by September 30, 2015 or converted into convertible debentures or equity on terms acceptable to the Holder. |
3. SIGNIFICANT ACCOUNTING POL24
3. SIGNIFICANT ACCOUNTING POLICIES: ADOPTION OF ACCOUNTING STANDARDS (Policies) | 9 Months Ended |
Jun. 30, 2015 | |
Notes to Financial Statements | |
BASIS OF PRESENTATION | Basis of Presentation The unaudited consolidated financial statements of the Company and the accompanying notes included in this Quarterly Report on Form 10-Q are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the Consolidated Financial Statements have been included. Such adjustments are of a normal, recurring nature. The Consolidated Financial Statements, and the accompanying notes, are prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and do not contain certain information included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2014. The interim Condensed Consolidated Financial Statements should be read in conjunction with that Annual Report on Form 10-K. |
PRINCIPLES OF CONSOLIDATION | Principles of Consolidation |
CASH AND CASH EQUIVALENTS | Cash and Cash Equivalents |
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS | Accounts Receivable and Allowance for Doubtful Accounts |
INVENTORIES | Inventories |
EQUIPMENT | Equipment |
INTANGIBLE ASSETS / INTELLECTUAL PROPERTY | Intangible Assets/ Intellectual Property |
GOODWILL | Goodwill |
LONG-LIVED ASSETS | Long-Lived Assets |
FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS | Fair Value Measurements and Financial Instruments Fair Value Measurement and Disclosures Level 1 Quoted prices in active markets for identical assets and liabilities; Level 2 Inputs other than level one inputs that are either directly or indirectly observable; and Level 3 Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use. Derivative Instruments Warrants with the June 2013 Private Placement Fair Value Measurements Using Inputs Carrying Financial Instruments Level 1 Level 2 Level 3 June 30, 2015 Liabilities: Derivative Instruments - Warrants $ - $ 602,179 $ - $ 602,179 Total $ - $ 602,179 $ - $ 602,179 Liabilities measured at fair value on a recurring basis are summarized as follows: June 30, 2015 Market price and estimated fair value of common stock: $ 5.450 Exercise price $ 22.50-$30.00 Expected term (years) 2.503 Dividend yield - Expected volatility 85.2 % Risk-free interest rate 0.75 % The risk-free rate of return reflects the interest rate for the United States Treasury Note with similar time-to-maturity to that of the warrants. The Company issued warrants to purchase 697,370 shares of common stock in connection with our June 2013 private placement of 348,685 shares of common stock. The exercise price of these warrants is $22.50 to $30.00 per share. These warrants were not issued with the intent of effectively hedging any future cash flow, fair value of any asset, liability or any net investment in a foreign operation. These warrants were issued with a down-round provision whereby the exercise price would be adjusted downward in the event that additional shares of our common stock or securities exercisable, convertible or exchangeable for the Companys common stock were issued at a price less than the exercise price. Therefore, the fair value of these warrants were recorded as a liability in the consolidated balance sheet and are marked to market each reporting period until they are exercised or expire or otherwise extinguished. The proceeds from the private placement were allocated between the shares of common stock and the warrants issued in connection with the private placement based upon their estimated fair values as of the closing date at June 14, 2013, resulting in the aggregate amount of $2,494,710 allocated to stockholders equity and $2,735,290 allocated to the warrant derivative. The Company recognized $1,448,710 of other expense resulting from the increase in the fair value of the warrant liability at September 30, 2013. During the year ended September 30, 2014, the Company recognized $2,092,000 of other income resulting from the decrease in the fair value of the warrant liability at September 30, 2014. During the nine months ended June 30, 2015, the Company recognized $1,489,821 of other income resulting from the decrease in the fair value of the warrant liability at June 30, 2015. Derivative Instruments Warrant with the November 2013 IDMC Services and License Agreement Carrying Fair Value Measurements Using Inputs Amount at Financial Instruments Level 1 Level 2 Level 3 June 30, 2015 Liabilities: Derivative Instruments - Warrants $ - $ 113,396 $ - $ 113,396 Total $ - $ 113,396 $ - $ 113,396 Liabilities measured at fair value on a recurring basis are summarized as follows: June 30, 2015 Market price and estimated fair value of common stock: $ 5.45 Exercise price $ 30.00 Expected term (years) 3.36 Dividend yield - Expected volatility 85.2 % Risk-free interest rate 0.75 % The risk-free rate of return reflects the interest rate for the United States Treasury Note with similar time-to-maturity to that of the warrants. The Company issued a warrant to purchase 97,169 shares of common stock in connection with the November 2013 IDMC Services and License Agreement. The warrant price of $30.00 per share expires November 10, 2018 and the per share price is subject to adjustment. This warrant was not issued with the intent of effectively hedging any future cash flow, fair value of any asset, liability or any net investment in a foreign operation. This warrant was issued with a down-round provision whereby the exercise price would be adjusted downward in the event that additional shares of our common stock or securities exercisable, convertible or exchangeable for our common stock were issued at a price less than the exercise price. Therefore, the fair value of these warrants was recorded as a liability in the consolidated balance sheet and are marked to market each reporting period until they are exercised or expire or otherwise extinguished. During the year ended September 30, 2014, the Company recognized $320,657 of other expense related to the IDMC warrant. During the nine months ended June 30, 2015, the Company recognized $207,260 of other income related to the IDMC warrant. Derivative Instrument Convertible Note Payable Carrying Fair Value Measurements Using Inputs Amount at Financial Instruments Level 1 Level 2 Level 3 June 30, 2015 Liabilities: Derivative Instruments - Convertible Promissory Note $ - $ 6,881 $ - $ 6,881 Total $ - $ 6,881 $ - $ 6,881 Liabilities measured at fair value on a recurring basis are summarized as follows: June 30, 2015 Market price and estimated fair value of common stock: $ 5.45 Exercise price $ 5.45 Expected term (years) 0.1 Dividend yield - Expected volatility 85.2 % Risk-free interest rate 75.00 % The risk-free rate of return reflects the interest rate for the United States Treasury Note with similar time-to-maturity to that of the Convertible Note Payable. The Company entered into a Convertible Note Payable with KBM Worldwide, Inc. on August 25, 2014 for $103,500. The Note was repaid on March 2, 2015. The Company entered into a Convertible Note Payable with KBM on September 24, 2014 for $63,000. The Note was repaid March 27, 2015. The Company entered into a Convertible Note Payable with KBM on January 27, 2015 for $64,000. The KBM Note accrues interest at a rate of 8% per annum and becomes due on October 27, 2015 and is convertible into common stock on July 26, 2015. The outstanding KBM Note is convertible at 65% of the average of the lowest three day trading price in the 10 days prior to conversion; however, the outstanding KBM note is not convertible until July 26, 2015. During the year ended September 30, 2014, the Company recognized $166,500 of other expense related to the KBM Note. During the nine months ended June 30, 2015, the Company recognized $52,679 of other income and allocated $98,940 to stockholders equity related to the KBM Note. Derivative Instrument Series A Convertible Preferred Stock Carrying Fair Value Measurements Using Inputs Amount at Financial Instruments Level 1 Level 2 Level 3 June 30, 2015 Liabilities: Derivative Instruments - Warrants $ - $ 65,312 $ - $ 65,312 Total $ - $ 65,312 $ - $ 65,312 Liabilities measured at fair value on a recurring basis are summarized as follows: June 30, 2015 Market price and estimated fair value of common stock: $ 5.45 Exercise price $ 30.00-$45.00 Expected term (years) 4.25 Dividend yield - Expected volatility 85.2 % Risk-free interest rate 0.75 % The risk-free rate of return reflects the interest rate for the United States Treasury Note with similar time-to-maturity to that of the Series A Convertible Preferred Stock. The Company issued 11,667 shares of Series A Convertible Preferred Stock with attached warrants during the nine months ended June 30, 2015. The Company allocated $233,322 to stockholders equity and $116,678 to the derivative warrant liability. The warrants were issued with a down round provision. During the nine months ended June 30, 2015, the Company recognized $65,312 of other expense related to the warrant liability. The recorded value of other financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, other current assets, and accounts payable and accrued expenses approximate the fair value of the respective assets and liabilities at June 30, 2015 and September 30, 2014 based upon the short-term nature of the assets and liabilities. |
REVENUE RECOGNITION | Revenue Recognition |
STOCK BASED COMPENSATION | Stock Based Compensation |
INCOME TAXES | Income Taxes |
NET LOSS PER SHARE | Net Loss per Share Diluted common shares outstanding were calculated using the Treasury Stock Method for the three months ended June 30, 2015 and 2014 are as follows: June 30, 2015 June 30, 2014 Weighted average number of common shares used in basic net income per common share 1,131,960 1,107,685 Dilutive effects of outstanding stock options and warrants - - Dilutive effects of convertible preferred shares - - Weighted average number of common shares used in diluted net income per common share 1,131,960 1,107,685 |
DIVIDEND POLICY | Dividend Policy |
USE OF ESTIMATES | Use of Estimates |
RECENT ACCOUNTING PRONOUNCEMENTS | Recent Accounting Pronouncements A variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various regulatory agencies. Due to the tentative and preliminary nature of those proposed standards, management has not determined whether implementation of such proposed standards would be material to our consolidated financial statements. |
3. SIGNIFICANT ACCOUNTING POL25
3. SIGNIFICANT ACCOUNTING POLICIES: ADOPTION OF ACCOUNTING STANDARDS (Tables) | 9 Months Ended |
Jun. 30, 2015 | |
Convertible Note Payable [Member] | |
Fair value of financial Instruments | Fair Value Measurements Using Inputs Carrying Financial Instruments Level 1 Level 2 Level 3 June 30, 2015 Liabilities: Derivative Instruments - Convertible Promissory Note $ - $ 6,881 $ - $ 6,881 Total $ - $ 6,881 $ - $ 6,881 |
Valuation assumptions for liabilities measured at fair value on a recurring basis | June 30, 2015 Market price and estimated fair value of common stock: $ 5.45 Exercise price $ 5.45 Expected term (years) 0.1 Dividend yield - Expected volatility 85.2 % Risk-free interest rate 75.00 % |
Series A Convertible Preferred Stock [Member] | |
Fair value of financial Instruments | Fair Value Measurements Using Inputs Carrying Amount at Financial Instruments Level 1 Level 2 Level 3 June 30, 2015 Liabilities: Derivative Instruments - Warrants $ - $ 65,312 $ - $ 65,312 Total $ - $ 65,312 $ - $ 65,312 |
Valuation assumptions for liabilities measured at fair value on a recurring basis | June 30, 2015 Market price and estimated fair value of common stock: $ 5.45 Exercise price $ 30.00-$45.00 Expected term (years) 4.25 Dividend yield - Expected volatility 85.2 % Risk-free interest rate 0.75 % |
Warrants with the June 2013 Private Placement | |
Fair value of financial Instruments | Carrying Fair Value Measurements Using Inputs Amount at Financial Instruments Level 1 Level 2 Level 3 June 30, 2015 Liabilities: Derivative Instruments - Warrants $ - $ 602,179 $ - $ 602,179 Total $ - $ 602,179 $ - $ 602,179 |
Valuation assumptions for liabilities measured at fair value on a recurring basis | June 30, 2015 Market price and estimated fair value of common stock: $ 5.450 Exercise price $ 22.50-$30.00 Expected term (years) 2.503 Dividend yield - Expected volatility 85.2 % Risk-free interest rate 0.75 % |
Warrant with the November 2013 IDMC Services and License Agreement | |
Fair value of financial Instruments | Carrying Fair Value Measurements Using Inputs Amount at Financial Instruments Level 1 Level 2 Level 3 June 30, 2015 Liabilities: Derivative Instruments - Warrants $ - $ 113,396 $ - $ 113,396 Total $ - $ 113,396 $ - $ 113,396 |
Valuation assumptions for liabilities measured at fair value on a recurring basis | June 30, 2015 Market price and estimated fair value of common stock: $ 5.45 Exercise price $ 30.00 Expected term (years) 3.36 Dividend yield - Expected volatility 85.2 % Risk-free interest rate 0.75 % |
9. FIXED ASSETS (Tables)
9. FIXED ASSETS (Tables) | 9 Months Ended |
Jun. 30, 2015 | |
Notes to Financial Statements | |
Schedule of Property and equipment | Property and equipment as of June 30, 2015 was comprised of the following: Estimated June 30, 2015 Useful Lives Purchased Capital Leases Total Machinery and equipment 2-10 years $ 192,374 $ 87,038 $ 279,412 Leasehold improvements 5-20 years 603,612 - 603,612 Furniture and fixtures 3-10 years 77,039 101,260 178,299 Software and websites 3- 7 years 63,783 44,849 108,632 Less: accumulated depreciation (552,508 ) (233,086 ) (785,594 ) $ 384,300 $ 61 $ 384,361 |
10. INTANGIBLE ASSETS (Tables)
10. INTANGIBLE ASSETS (Tables) | 9 Months Ended |
Jun. 30, 2015 | |
Notes to Financial Statements | |
Schedule Of Intangible Assets | Estimated June 30, September 30, Useful Lives 2015 2014 Customer contracts 5 years $ 983,645 $ 983,645 Technology 5 years 712,500 712,500 Less: accumulated amortization (1,502,520 ) (1,264,492 ) Intangible assets, net $ 193,625 $ 431,653 |
13. NOTES PAYABLE, CAPITALIZE28
13. NOTES PAYABLE, CAPITALIZED LEASES AND LONG TERM DEBT (Tables) | 9 Months Ended |
Jun. 30, 2015 | |
Notes to Financial Statements | |
Notes payable, capitalized leases and long term debt | June 30, September 30, 2015 2014 Capital Source Business Finance Group $ 348,840 $ 488,398 Note payable to Umpqua Bank 200,000 200,000 Secured note payable to J3E2A2Z LP - related party 600,000 600,000 TransTech capitalized leases, net of capitalized interest 272 2,562 Total debt 1,149,112 1,290,960 Less current portion of long term debt (1,149,112 ) (1,290,960 ) Long term debt $ - $ - |
14. EQUITY (Tables)
14. EQUITY (Tables) | 9 Months Ended |
Jun. 30, 2015 | |
Notes to Financial Statements | |
Summary of the warrants issued | June 30, 2015 Weighted Average Exercise Shares Price Outstanding at beginning of period 857,083 $ 26.280 Issued 46,667 37.50 Exercised - - Forfeited - - Expired (4,000 ) 15.00 Outstanding at end of period 899,750 $ 26.86 Exerciseable at end of period 899,750 |
Summary of the status of the warrants outstanding | June 30, 2015 Weighted Weighted Weighted Average Average Average Number of Remaining Exercise Shares Exercise Warrants Life ( In Years) Price Exerciseable Price 38,205 2.49 $ 19.50-22.50 38,205 $ 19.50-22.50 348,685 2.63 22.50 348,685 22.50 489,526 2.78 30.00 489,526 30.00 23,334 4.12 45.00 23,334 45.00 899,750 2.78 $ 26.86 899,750 $ 26.86 |
Weighted average assumptions relating to the valuation of the Companys warrants | Dividend yield 0% Expected life 3 Expected volatility 90% Risk free interest rate 0.7% |
15. STOCK OPTIONS (Tables)
15. STOCK OPTIONS (Tables) | 9 Months Ended |
Jun. 30, 2015 | |
Notes to Financial Statements | |
Stock option activity | Weighted Average Options Exercise Price $ Outstanding as of September 30, 2012 39,467 $ 19.682 $ 776,800 Granted 45,533 18.360 836,000 Exercised - - - Forfeitures (100 ) (36.000 ) (3,600 ) Outstanding as of September 30, 2013 84,900 18.954 1,609,200 Granted 2,633 15.000 39,500 Exercised - - - Forfeitures (200 ) (32.500 ) (6,500 ) Outstanding as of September 30, 2014 87,333 18.804 1,642,200 Granted 11,335 15.000 170,025 Exercised - - - Forfeitures (40,860 ) (18.232 ) (744,978 ) Outstanding as of June 30, 2015 57,808 $ 18.462 $ 1,067,247 |
Stock options outstanding and exercisable | Weighted Weighted Weighted Average Average Average Range of Number Remaining Life Exercise Price Number Exercise Price Exercise Prices Outstanding In Years Exerciseable Exerciseable Exerciseable 13.500 3,334 2.50 $ 13.50 3,334 $ 13.50 15.000 21,204 4.07 15.00 6,190 15.00 19.500 19,002 4.75 19.50 19,002 19.50 22.500 13,334 4.64 22.50 13,334 22.50 36.000 934 0.06 36.00 934 36.00 57,808 4.42 $ 18.46 42,794 $ 20.41 |
2. GOING CONCERN (Details Narra
2. GOING CONCERN (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||
Jun. 30, 2015 | Jun. 30, 2014 | Jun. 30, 2015 | Jun. 30, 2014 | Sep. 30, 2014 | Sep. 30, 2013 | |
Notes to Financial Statements | ||||||
Net loss | $ 767,280 | $ 1,336,506 | $ (147,779) | $ (1,238,975) | $ (1,017,281) | $ (6,604,631) |
CASH (USED IN) OPERATING ACTIVITIES | (149,921) | $ (901,522) | (1,379,397) | |||
Accumulated Deficit | $ 21,682,898 | $ 21,682,898 | $ 21,535,119 |
3. SIGNIFICANT ACCOUNTING POL32
3. SIGNIFICANT ACCOUNTING POLICIES: ADOPTION OF ACCOUNTING STANDARDS (Details) | Jun. 30, 2015USD ($) |
Fair Value Measurements Level 1 [Member] | Warrants June 2013 Private Placement [Member] | |
Liabilities: | |
Derivative Instruments | $ 0 |
Total | 0 |
Fair Value Measurements Level 1 [Member] | Warrants November 2013 IDMC Services and License Agreement | |
Liabilities: | |
Derivative Instruments | 0 |
Total | 0 |
Fair Value Measurements Level 1 [Member] | Convertible Note Payable [Member] | |
Liabilities: | |
Derivative Instruments | 0 |
Total | 0 |
Fair Value Measurements Level 1 [Member] | Series A Convertible Preferred Stock [Member] | |
Liabilities: | |
Derivative Instruments | 0 |
Total | 0 |
Fair Value Measurements Level 2 [Member] | Warrants June 2013 Private Placement [Member] | |
Liabilities: | |
Derivative Instruments | 602,179 |
Total | 602,179 |
Fair Value Measurements Level 2 [Member] | Warrants November 2013 IDMC Services and License Agreement | |
Liabilities: | |
Derivative Instruments | 113,396 |
Total | 113,396 |
Fair Value Measurements Level 2 [Member] | Convertible Note Payable [Member] | |
Liabilities: | |
Derivative Instruments | 6,881 |
Total | 6,881 |
Fair Value Measurements Level 2 [Member] | Series A Convertible Preferred Stock [Member] | |
Liabilities: | |
Derivative Instruments | 65,312 |
Total | 65,312 |
Fair Value Measurements Level 3 [Member] | Warrants June 2013 Private Placement [Member] | |
Liabilities: | |
Derivative Instruments | 0 |
Total | 0 |
Fair Value Measurements Level 3 [Member] | Warrants November 2013 IDMC Services and License Agreement | |
Liabilities: | |
Derivative Instruments | 0 |
Total | 0 |
Fair Value Measurements Level 3 [Member] | Convertible Note Payable [Member] | |
Liabilities: | |
Derivative Instruments | 0 |
Total | 0 |
Fair Value Measurements Level 3 [Member] | Series A Convertible Preferred Stock [Member] | |
Liabilities: | |
Derivative Instruments | 0 |
Total | 0 |
Carrying Value [Member] | Warrants June 2013 Private Placement [Member] | |
Liabilities: | |
Derivative Instruments | 602,179 |
Total | 602,179 |
Carrying Value [Member] | Warrants November 2013 IDMC Services and License Agreement | |
Liabilities: | |
Derivative Instruments | 113,396 |
Total | 113,396 |
Carrying Value [Member] | Convertible Note Payable [Member] | |
Liabilities: | |
Derivative Instruments | 6,881 |
Total | 6,881 |
Carrying Value [Member] | Series A Convertible Preferred Stock [Member] | |
Liabilities: | |
Derivative Instruments | 65,312 |
Total | $ 65,312 |
3. SIGNIFICANT ACCOUNTING POL33
3. SIGNIFICANT ACCOUNTING POLICIES: ADOPTION OF ACCOUNTING STANDARDS (Details1) - Jun. 30, 2015 - $ / shares | Total |
Warrants - June 2013 Private Placement | |
Market price and estimated fair value of common stock: | $ 5.450 |
Expected term (years) | 2 years 6 months |
Dividend yield | 0.00% |
Expected volatility | 85.20% |
Risk-free interest rate | 0.75% |
Warrants - June 2013 Private Placement | Minimum [Member] | |
Exercise price | $ 22.05 |
Warrants - June 2013 Private Placement | Maximum [Member] | |
Exercise price | 30 |
Warrants - November 2013 IDMC Services and License Agreement | |
Market price and estimated fair value of common stock: | 5.45 |
Exercise price | $ 30 |
Expected term (years) | 3 years 4 months 10 days |
Dividend yield | 0.00% |
Expected volatility | 85.20% |
Risk-free interest rate | 0.75% |
Convertible Note Payable [Member] | |
Market price and estimated fair value of common stock: | $ 5.45 |
Exercise price | $ 5.45 |
Expected term (years) | 1 month 6 days |
Dividend yield | 0.00% |
Expected volatility | 85.20% |
Risk-free interest rate | 0.75% |
Series A Convertible Preferred Stock [Member] | |
Market price and estimated fair value of common stock: | $ 5.45 |
Expected term (years) | 4 years 3 months |
Dividend yield | 0.00% |
Expected volatility | 85.20% |
Risk-free interest rate | 0.75% |
Series A Convertible Preferred Stock [Member] | Minimum [Member] | |
Exercise price | $ 30 |
Series A Convertible Preferred Stock [Member] | Maximum [Member] | |
Exercise price | $ 45 |
3. SIGNIFICANT ACCOUNTING POL34
3. SIGNIFICANT ACCOUNTING POLICIES: ADOPTION OF ACCOUNTING STANDARDS (Details Narrative) - USD ($) | 9 Months Ended | |
Jun. 30, 2015 | Sep. 30, 2014 | |
Reserve for impaired inventory | $ 15,000 | $ 10,000 |
Minimum [Member] | ||
Estimated useful lives of assets | 2 years | |
Minimum [Member] | Leasehold Improvements [Member] | ||
Estimated useful lives of assets | 5 years | |
Maximum [Member] | ||
Estimated useful lives of assets | 10 years | |
Maximum [Member] | Leasehold Improvements [Member] | ||
Estimated useful lives of assets | 20 years |
4. DEVELOPMENT OF CHROMAID(TM35
4. DEVELOPMENT OF CHROMAID(TM) TECHNOLOGY (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||
Jun. 30, 2015 | Jun. 30, 2014 | Jun. 30, 2015 | Jun. 30, 2014 | Sep. 30, 2014 | Sep. 30, 2013 | |
Notes to Financial Statements | ||||||
Research and development expense | $ 89,097 | $ 165,880 | $ 285,627 | $ 570,754 | $ 670,742 | $ 1,169,281 |
7. ACCOUNTS RECEIVABLE_CUSTOM36
7. ACCOUNTS RECEIVABLE/CUSTOMER CONCENTRATION (Details Narrative) - USD ($) | Jun. 30, 2015 | Sep. 30, 2014 |
Notes to Financial Statements | ||
Accounts receivable, net of allowance | $ 672,279 | $ 815,460 |
8. INVENTORIES (Details Narrati
8. INVENTORIES (Details Narrative) - USD ($) | Jun. 30, 2015 | Sep. 30, 2014 |
Notes to Financial Statements | ||
Inventories | $ 269,304 | $ 412,831 |
Reserve for impaired inventory | $ 15,000 | $ 10,000 |
9. FIXED ASSETS (Details)
9. FIXED ASSETS (Details) - USD ($) | Jun. 30, 2015 | Sep. 30, 2014 |
Machinery and equipment (2-10 years) | $ 279,412 | |
Leasehold improvements (5-20 years) | 603,612 | |
Furniture and fixtures (3-10 years) | 178,299 | |
Software and websites (3- 7 years) | 108,632 | |
Less: accumulated depreciation | (785,594) | $ (742,676) |
Property and equipment, net | 384,361 | $ 447,236 |
Purchased [Member] | ||
Machinery and equipment (2-10 years) | 192,374 | |
Leasehold improvements (5-20 years) | 603,612 | |
Furniture and fixtures (3-10 years) | 77,039 | |
Software and websites (3- 7 years) | 63,783 | |
Less: accumulated depreciation | (552,508) | |
Property and equipment, net | 384,300 | |
Capital Lease [Member] | ||
Machinery and equipment (2-10 years) | 87,038 | |
Leasehold improvements (5-20 years) | 0 | |
Furniture and fixtures (3-10 years) | 101,260 | |
Software and websites (3- 7 years) | 44,849 | |
Less: accumulated depreciation | (233,086) | |
Property and equipment, net | $ 61 |
9. FIXED ASSETS (Details Narrat
9. FIXED ASSETS (Details Narrative) - USD ($) | 9 Months Ended | ||
Jun. 30, 2015 | Jun. 30, 2014 | Sep. 30, 2014 | |
Notes to Financial Statements | |||
Property and equipment, net | $ 384,361 | $ 447,236 | |
Property and equipment, accumulated depreciation | 785,594 | $ 742,676 | |
Depreciation expense | $ 61,727 | $ 26,681 |
10. INTANGIBLE ASSETS (Details)
10. INTANGIBLE ASSETS (Details) - USD ($) | 9 Months Ended | |
Jun. 30, 2015 | Sep. 30, 2014 | |
Less: accumulated amortization | $ (1,502,520) | $ (1,264,492) |
Intangible assets, net | 193,625 | 431,653 |
Customer Contracts [Member] | ||
Intangible Assets Gross | $ 983,645 | 983,645 |
Estimated Useful life | 5 years | |
Technology [Member] | ||
Intangible Assets Gross | $ 712,500 | $ 712,500 |
Estimated Useful life | 5 years |
10. INTANGIBLE ASSETS (Details
10. INTANGIBLE ASSETS (Details Narrative) - USD ($) | 9 Months Ended | |
Jun. 30, 2015 | Jun. 30, 2014 | |
Notes to Financial Statements | ||
Amortization expense | $ 238,028 | $ 254,482 |
11. ACCOUNTS PAYABLE (Details N
11. ACCOUNTS PAYABLE (Details Narrative) - USD ($) | Jun. 30, 2015 | Sep. 30, 2014 |
Notes to Financial Statements | ||
Accounts payable | $ 2,453,087 | $ 2,234,123 |
Vendor One with accounts payble on excess of 10% | 23.10% | |
Vendor Two with accounts payble on excess of 10% | 13.30% |
12. CONVERTIBLE NOTES PAYABLE (
12. CONVERTIBLE NOTES PAYABLE (Details Narrative) - Jun. 30, 2015 - KBM Notes [Member] - USD ($) | Total |
Other expense recognized | $ 166,500 |
Other income recognized | 29,529 |
Allocated to shareholder's equity | 98,940 |
Accrued interest | $ 898 |
13. NOTES PAYABLE, CAPITALIZE44
13. NOTES PAYABLE, CAPITALIZED LEASES AND LONG TERM DEBT (Details) - USD ($) | Jun. 30, 2015 | Sep. 30, 2014 |
Notes Payable Capitalized Leases And Long Term Debt Details | ||
Capital Source Business Finance Group | $ 348,840 | $ 488,398 |
Note payable to Umpqua Bank | 200,000 | 200,000 |
Note payable to J3E2A2Z LP - related party | 600,000 | 600,000 |
TransTech capitalized leases, net of capitalized interest | 272 | 2,562 |
Total debt | 1,149,112 | 1,290,960 |
Less current portion of long term debt | (1,149,112) | (1,290,960) |
Long term debt | $ 0 | $ 0 |
14. EQUITY (Details)
14. EQUITY (Details) - $ / shares | 9 Months Ended |
Jun. 30, 2015 | |
Shares | |
Outstanding at beginning of period | 857,083 |
Issued | 46,667 |
Exercised | 0 |
Forfeited | 0 |
Expired | (4,000) |
Outstanding at end of period | 899,750 |
Exercisable at end of period | 899,750 |
Weighted Average Exercise Price: | |
Outstanding at beginning of period | $ 26.28 |
Issued | $ 37.5 |
Exercised | |
Forfeited | |
Expired | $ 15 |
Outstanding at end of period | $ 26.86 |
14. EQUITY (Details 1)
14. EQUITY (Details 1) - Jun. 30, 2015 - $ / shares | Total |
Number of Warrants | 899,750 |
Weighted Average Remaining Life (years) | 2 years 9 months 11 days |
Weighted Average Exercise Price | $ 26.86 |
Shares Exercisable | 899,750 |
19.50-22.50 | |
Number of Warrants | 38,205 |
Weighted Average Remaining Life (years) | 2 years 5 months 26 days |
Shares Exercisable | 38,205 |
19.50-22.50 | Minimum [Member] | |
Weighted Average Exercise Price | $ 19.50 |
19.50-22.50 | Maximum [Member] | |
Weighted Average Exercise Price | $ 22.50 |
22.5 | |
Number of Warrants | 348,685 |
Weighted Average Remaining Life (years) | 2 years 7 months 17 days |
Weighted Average Exercise Price | $ 22.50 |
Shares Exercisable | 348,685 |
30 | |
Number of Warrants | 489,526 |
Weighted Average Remaining Life (years) | 2 years 9 months 11 days |
Weighted Average Exercise Price | $ 30 |
Shares Exercisable | 489,526 |
45 | |
Number of Warrants | 23,334 |
Weighted Average Remaining Life (years) | 4 years 1 month 13 days |
Weighted Average Exercise Price | $ 45 |
Shares Exercisable | 23,334 |
14. EQUITY (Details 2)
14. EQUITY (Details 2) - 9 months ended Jun. 30, 2015 | Total |
Equity Details | |
Dividend yield | 0.00% |
Expected life | 3 years |
Expected volatility | 90.00% |
Risk free interest rate | 0.70% |
14. EQUITY (Details Narrative)
14. EQUITY (Details Narrative) - Jun. 30, 2015 - USD ($) | Total |
Notes to Financial Statements | |
Expenses related to restricted stock | $ 135,000 |
Intrinsic value | $ 0 |
Warrants Vested | 899,750 |
15. STOCK OPTIONS (Details)
15. STOCK OPTIONS (Details) - USD ($) | 9 Months Ended | 12 Months Ended | |
Jun. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2013 | |
Shares: | |||
Outstanding at beginning of period | 857,083 | ||
Shares granted | 46,667 | ||
Shares exercised | 0 | ||
Shares forfeitures | 0 | ||
Outstanding at end of period | 899,750 | 857,083 | |
Weighted Average Exercise Price: | |||
Outstanding at beginning of period | $ 26.28 | ||
Shares granted | $ 37.5 | ||
Shares exercised | |||
Shares forfeitures | |||
Outstanding at end of period | $ 26.86 | $ 26.28 | |
Aggregate Intrinsic Value | |||
Aggregate Intrinsic Value Outstanding, End | $ 0 | ||
Stock Options | |||
Shares: | |||
Outstanding at beginning of period | 87,333 | 84,900 | 39,467 |
Shares granted | 11,335 | 2,633 | 45,533 |
Shares exercised | 0 | 0 | 0 |
Shares forfeitures | (40,860) | (200) | (100) |
Outstanding at end of period | 57,808 | 87,333 | 84,900 |
Weighted Average Exercise Price: | |||
Outstanding at beginning of period | $ 18.804 | $ 18.954 | $ 19.682 |
Shares granted | $ 15 | $ 15 | $ 18.36 |
Shares exercised | |||
Shares forfeitures | $ (18.232) | $ (32.500) | $ (36) |
Outstanding at end of period | $ 18.462 | $ 18.804 | $ 18.954 |
Aggregate Intrinsic Value | |||
Aggregate Intrinsic Value Outstanding, Beginning | $ 1,642,200 | $ 1,609,200 | $ 776,800 |
Aggregate Intrinsic Value Outstanding, Granted | $ 170,025 | $ 39,500 | $ 836,000 |
Aggregate Intrinsic Value Outstanding, Exercised | |||
Aggregate Intrinsic Value Outstanding, Forefeitures | $ (744,978) | $ (6,500) | $ (3,600) |
Aggregate Intrinsic Value Outstanding, End | $ 1,067,247 | $ 1,642,200 | $ 1,609,200 |
15. STOCK OPTIONS (Details 1)
15. STOCK OPTIONS (Details 1) - Jun. 30, 2015 - $ / shares | Total |
Number of Outstanding Stock Options | 899,750 |
Weighted Average Remaining Life (years) | 2 years 9 months 11 days |
Weighted Average Exercise Price Exerciseable | $ 26.86 |
Number Exercisable | 899,750 |
Stock Options | |
Number of Outstanding Stock Options | 57,808 |
Weighted Average Remaining Life (years) | 4 years 5 months 1 day |
Weighted Average Exercise Price Exerciseable | $ 18.46 |
Number Exercisable | 42,794 |
Exercise Price 13.5 | |
Number of Outstanding Stock Options | 3,334 |
Weighted Average Remaining Life (years) | 2 years 6 months |
Weighted Average Exercise Price Exerciseable | $ 13.5 |
Number Exercisable | 3,334 |
Exercise Price 15 | |
Number of Outstanding Stock Options | 21,204 |
Weighted Average Remaining Life (years) | 4 years 25 days |
Weighted Average Exercise Price Exerciseable | $ 15 |
Number Exercisable | 6,190 |
Exercise Price 19.5 | |
Number of Outstanding Stock Options | 19,002 |
Weighted Average Remaining Life (years) | 4 years 9 months |
Weighted Average Exercise Price Exerciseable | $ 19.5 |
Number Exercisable | 19,002 |
Exercise Price 22.5 | |
Number of Outstanding Stock Options | 13,334 |
Weighted Average Remaining Life (years) | 4 years 7 months 20 days |
Weighted Average Exercise Price Exerciseable | $ 22.5 |
Number Exercisable | 13,334 |
Exercise Price 36 | |
Number of Outstanding Stock Options | 934 |
Weighted Average Remaining Life (years) | 22 days |
Weighted Average Exercise Price Exerciseable | $ 36 |
Number Exercisable | 934 |
15. STOCK OPTIONS (Details Narr
15. STOCK OPTIONS (Details Narrative) - USD ($) | 9 Months Ended | |
Jun. 30, 2015 | Jun. 30, 2014 | |
Unrecognized compensation costs | $ 197,452 | |
Period for recognition | 4 years 5 months 1 day | |
Options to purchase common stock under 2011 Stock Incentive Plan | 899,750 | |
Exercisable at end of period | 899,750 | |
2011 Stock Incentive Plan | ||
Compensation expense | $ 53,222 | $ 66,715 |
Exercisable at end of period | 42,794 | |
Aggregate intrinsic value | $ 0 |
17. COMMITMENTS, CONTINGENCIE52
17. COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS (Details Narrative) | Jun. 30, 2015USD ($) |
Notes to Financial Statements | |
Aggregate future minimum lease payments under operating leases | $ 40,583 |