Exhibit 99.1
TABLE OF CONTENTS
PAGE | |
INDEPENDENT AUDITORS’ REPORT | F-1 |
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 2011 AND 2010 | F-2 |
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 | F-3 |
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER’S EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 | F-4 |
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 | F-5 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | F-6 – F-10 |
INDEPENDENT AUDITORS' REPORT
To the Member of
SleepHealth, LLC and Subsidiaries
Monroe, Georgia
We have audited the accompanying consolidated balance sheets of SleepHealth, LLC and subsidiaries (the "Company") as of December 31, 2011 and 2010, and the related consolidated statements of operations, changes in member’s equity (deficit), and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements referred to above are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SleepHealth, LLC and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has incurred historical losses and management expects the Company will continue to incur operating losses and negative cash flows. These conditions raise substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters also are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Habif, Arogeti & Wynne, LLP
Atlanta, Georgia.
December 14, 2012
F-1 |
SleepHealth, LLC and Subsidiaries
Consolidated Balance Sheets
December 31,
ASSETS | ||||||||
2011 | 2010 | |||||||
CURRENT ASSETS | ||||||||
Cash | $ | 22,024 | $ | 13,763 | ||||
Accounts receivable, net of allowance for uncollectible amounts of $10,830 and $20,697 at December 31, 2011 and 2010, respectively | 163,166 | 233,637 | ||||||
Prepaid expenses | 3,683 | - | ||||||
TOTAL CURRENT ASSETS | 188,873 | 247,400 | ||||||
PROPERTY AND EQUIPMENT, NET | 128,849 | 210,648 | ||||||
DEPOSITS | 1,500 | - | ||||||
TOTAL ASSETS | $ | 319,222 | $ | 458,048 | ||||
LIABILITIES AND MEMBER'S EQUITY (DEFICIT) | ||||||||
CURRENT LIABILITIES | ||||||||
Lines of credit | $ | 72,286 | $ | 77,575 | ||||
Accounts payable | 31,009 | 27,916 | ||||||
Accrued compensation | 23,831 | 9,605 | ||||||
Accrued expenses | 28,280 | 29,857 | ||||||
Current maturities of notes payable | 109,600 | 85,568 | ||||||
Advances from member | 13,209 | 3,209 | ||||||
TOTAL CURRENT LIABILITIES | 278,215 | 233,730 | ||||||
Notes payable, net of current maturities | 54,603 | 65,444 | ||||||
TOTAL LIABILITIES | 332,818 | 299,174 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
MEMBER'S EQUITY (DEFICIT) | ||||||||
Noncontrolling interest | - | 104,848 | ||||||
Member's equity (deficit) | (13,596 | ) | 54,026 | |||||
TOTAL MEMBER'S EQUITY (DEFICIT) | (13,596 | ) | 158,874 | |||||
TOTAL LIABILITIES AND MEMBER'S EQUITY (DEFICIT) | $ | 319,222 | $ | 458,048 |
See the accompanying notes to the consolidated financial statements.
F-2 |
SleepHealth, LLC and Subsidiaries
Consolidated Statements of Operations
For the Years Ended December 31,
2011 | 2010 | |||||||
REVENUE | $ | 1,270,579 | $ | 1,221,020 | ||||
COST OF REVENUE | 969,991 | 949,815 | ||||||
Gross Profit | 300,588 | 271,205 | ||||||
OPERATING EXPENSES | ||||||||
Sales and marketing | 13,855 | 5,974 | ||||||
General and administrative | 327,226 | 281,870 | ||||||
Total Operating Expenses | 341,081 | 287,844 | ||||||
LOSS FROM OPERATIONS | (40,493 | ) | (16,639 | ) | ||||
OTHER INCOME (EXPENSE) | ||||||||
Interest expense | (26,045 | ) | (44,340 | ) | ||||
Other income | 36 | 372 | ||||||
Total Other Income (Expense) | (26,009 | ) | (43,968 | ) | ||||
NET LOSS | $ | (66,502 | ) | $ | (60,607 | ) | ||
Attributable to: | ||||||||
Controlling member | $ | (54,198 | ) | $ | (37,833 | ) | ||
Noncontrolling interests | $ | (12,304 | ) | $ | (22,774 | ) |
See the accompanying notes to the consolidated financial statements.
F-3 |
SleepHealth, LLC and Subsidiaries
Consolidated Statement of Changes in Member's Equity (Deficit)
For the Years Ended December 31, 2011 and 2010
Member's Equity | Noncontrolling Interest | Total | ||||||||||
Beginning balance, December 31, 2009 | $ | 122,071 | $ | 138,597 | $ | 260,668 | ||||||
Net loss | (37,833 | ) | (22,774 | ) | (60,607 | ) | ||||||
Distributions to member | (30,212 | ) | (10,975 | ) | (41,187 | ) | ||||||
Ending balance, December 31, 2010 | 54,026 | 104,848 | 158,874 | |||||||||
Net loss | (54,198 | ) | (12,304 | ) | (66,502 | ) | ||||||
Distributions to member | (4,191 | ) | (1,702 | ) | (5,893 | ) | ||||||
Acquisition of noncontrolling interest | (9,233 | ) | (90,842 | ) | (100,075 | ) | ||||||
Ending balance, December 31, 2011 | $ | (13,596 | ) | $ | 0 | $ | (13,596 | ) |
See the accompanying notes to the consolidated financial statements.
F-4 |
SleepHealth, LLC and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31,
2011 | 2010 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net loss | $ | (66,502 | ) | $ | (60,607 | ) | ||
Adjustment to reconcile net loss to cash used in operating activities | ||||||||
Depreciation | 82,592 | 118,190 | ||||||
Increase (decrease) in working capital items | ||||||||
Accounts receivable | 70,471 | 119,211 | ||||||
Shareholder advances | 10,000 | (15,805 | ) | |||||
Accounts payable | 3,093 | (2,545 | ) | |||||
Accrued compensation and expenses | 12,650 | (7,337 | ) | |||||
Other | (5,184 | ) | 10,907 | |||||
Net cash provided by operating activities | 107,120 | 162,014 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Equipment purchased | (792 | ) | (47,102 | ) | ||||
Net cash used in investing activities | (792 | ) | (47,102 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Payments on equipment loans | (56,212 | ) | (31,602 | ) | ||||
Proceeds from equipment loan | - | 10,567 | ||||||
Payments on lines of credit | (5,289 | ) | (36,754 | ) | ||||
Distributions to member | (5,893 | ) | (41,187 | ) | ||||
Payments on loan from former non-controlling interest | (30,673 | ) | (9,056 | ) | ||||
Net cash used by financing activities | (98,067 | ) | (108,032 | ) | ||||
NET INCREASE IN CASH | 8,261 | 6,880 | ||||||
CASH - BEGINNING OF YEAR | 13,763 | 6,883 | ||||||
CASH - END OF YEAR | $ | 22,024 | $ | 13,763 | ||||
CASH PAID DURING THE YEAR FOR | ||||||||
Interest | $ | 26,045 | $ | 44,340 |
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES
On June 15, 2011, the Company purchased the outstanding ownership interest in SleepHealth
North Carolina, LLC with a note payable in the amount of $108,0000. See Note 7.
See the accompanying notes to the consolidated financial statements.
F-5 |
SleepHealth, LLC and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2011 and 2010
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
History and Nature of Business
SleepHealth, LLC (the “Company”) was organized in 2002 by Ailene Miller as a limited liability company in the state of Georgia. Ms. Miller is the sole owner of SleepHealth, LLC. The Company provides sleep management services to patients in hospitals and physicians’ offices in the state of Georgia.
SleepHealth North Carolina, LLC was organized in 2007 as a limited liability company, also in the state of Georgia, and was owned equally by the Company and Michael Dyer. SleepHealth North Carolina, LLC provides sleep management services to patients in hospitals and physicians’ offices in the states of North Carolina and South Carolina. In June 2011, the Company purchased Mr. Dyer’s ownership interest in SleepHealth North Carolina, LLC (Note 7).
Principles of Consolidation
The consolidated financial statements are composed of SleepHealth, LLC, SleepHealth North Carolina, LLC, SleepHealth Texas, LLC, (“Texas”), SleepHealth Partners, LLC and Children’s Sleep Centers, Inc. (collectively “the Company”). All material intercompany transactions have been eliminated. Operations for SleepHealth Texas, LLC were discontinued in 2010 and it was administratively dissolved in September 2012. Revenue from Texas was never material and a separate presentation of discontinued operations has not been provided. SleepHealth Partners, LLC and Children’s Sleep Centers, Inc. had no activity during 2010 when both entities were administratively dissolved.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future, actual results could differ from these estimates. Examples include allowance for uncollectible accounts, lives assigned to property and equipment and estimates of accrued expenses.
Accounts Receivable
Accounts receivable are stated at the amount management expects to collect from its customers. Management provides for uncollectible amounts through a charge to earnings and a credit to an allowance for doubtful accounts based upon its assessment of the current status of individual accounts. Balances that are still outstanding after management has performed reasonable collection efforts are written off through a charge to the allowance and a credit to accounts receivable. As of December 31, 2011 and 2010, the Company has provided for uncollectible amounts of $10,830 and $20,697, respectively. Management grants credit to customers without requiring collateral. The amount of accounting loss for which the Company is at risk in these unsecured accounts receivable is limited to their carrying value.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided by the use of the straight-line and accelerated methods for financial and tax reporting purposes, respectively, over the estimated useful lives of the assets, generally 5 years for equipment and 7 years for furniture and fixtures.
Property and equipment is evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, an impairment loss is recognized in the amount that the carrying amount of the asset exceeds its fair value. Fair value is determined based on discounted future net cash flows associated with the use of the asset.
F-6 |
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash, accounts receivable, accounts payable, accrued expenses, lines of credit, equipment loans, member advances, and non-controlling interest notes payable. The carrying values of all the Company’s financial instruments approximate fair value because of their short maturities. In addition to the short maturities, the carrying amounts of our lines of credit and equipment loans approximate fair value because the interest rates approximate market interest rates for the respective borrowings.
Income Taxes
The Company operates as a limited liability company (“LLC”). As such, the net income or loss from the Company flows through to the members and they are taxed on their proportionate share of the LLC’s taxable income. Therefore, no provision or liability for federal or state income taxes related to the LLC is included in these consolidated financial statements.
Tax benefits arising from an uncertain tax position can only be recognized for financial reporting purposes if, and to the extent that, the position is more likely than not to be sustained in an audit by the applicable taxing authority. There were no material unrecognized tax benefits and related tax liabilities at December 31, 2011 and 2010. Penalties related to uncertain tax positions would be recorded as a component of general and administrative expenses. Interest relating to uncertain tax positions would be recorded as a component of interest expense. The Company is no longer subject to income tax examinations for calendar years prior to 2008.
Revenue
Revenue is attributable to fees for providing services, primarily sleep disorder testing, therapeutic titrations and clinical management. Most agreements include a fee per patient and type of study performed. The agreements may also include a fixed monthly fee for equipment. Fees associated with services are recognized in the period services are rendered and earned under service arrangements with clients where service fees are fixed or determinable and collectability is reasonably assured. Service fees are determined based on written price quotations or service agreements having stipulated terms and conditions that do not require management to make any significant judgments or assumptions regarding any potential uncertainties.
Cost of Revenue
Cost of revenue consists primarily of personnel and medical supplies costs incurred in the delivery of the service.
NOTE 2 – LIQUIDITY AND GOING CONCERN
The Company's consolidated financial statements are prepared using the accrual method of accounting in accordance with accounting principles generally accepted in the United States of America and have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. However, the Company incurred losses during the years ended December 31, 2011 and 2010. At December 31, 2011, the Company had cash of $22,024 and a deficit in working capital of $89,342. Further, at December 31, 2011, the member’s deficit amounted to $13,596. As a result of the Company's history of losses and financial condition, there is substantial doubt about the ability of the Company to continue as a going concern.
A successful transition to attaining profitable operations is dependent upon obtaining sufficient financing to fund the Company’s planned expenses and achieving a level of revenue adequate to support the Company’s cost structure. Management plans to finance future operations through the use of cash on hand and increased revenue.
There can be no assurances that the Company will be able to achieve its future projected level of revenues. If the Company is unable to achieve its projected revenue and is not able to obtain alternate additional financing of equity or debt, the Company would need to reorient its operations, which could have a material adverse effect on the Company’s ability to achieve its business objectives. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts classified as liabilities.
F-7 |
NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
2011 | 2010 | |||||||
Equipment | $ | 513,845 | $ | 513,052 | ||||
Furniture and fixtures | 69,243 | 69,243 | ||||||
583,088 | 582,295 | |||||||
Accumulated depreciation | (454,239 | ) | (371,647 | ) | ||||
$ | 128,849 | $ | 210,648 |
Depreciation expense for the years ended December 31, 2011 and 2010 was $82,592 and $118,190, respectively.
NOTE 4 – LINES OF CREDIT
In July 2007, the Company executed an unsecured line of credit with a principal amount up to $50,000. Interest is computed at the Wall Street Journal prime rate + 1.10% and is payable monthly. Interest paid under this line of credit was $2,370 and $2,318 for the years ended December 31, 2011 and 2010, respectively. The interest rate in 2011 and 2010 was 4.35%. The note is payable upon demand. Balances outstanding were $49,739 and $50,180 at December 31, 2011 and 2010, respectively.
There are several other revolving short-term lines of credit with interest rates ranging from 10 to 27%.
F-8 |
NOTE 5 – NOTES PAYABLE
2011 | 2010 | |||||||||
1) | A $53,000 non-controlling interest note payable to a former business partner, unsecured and non-interest bearing but with imputed interest at the rate of 6% per annum, to be paid in monthly installments of $1,000 each through August 2013. | $ | 20,784 | $ | 30,351 | |||||
2) | A $108,000 non-controlling interest note payable to a former business partner, unsecured and non-interest bearing but with imputed interest at the rate of 6% per annum, to be paid in monthly installments of $3,500 each through December 2013. | 78,970 | - | |||||||
3) | Equipment loans totaling approximately $163,000, bearing interest in the range of 11.7-12.3% per annum, payment amounts ranging from $349 - $959 per month, payoff dates occurring between 2012 and 2013; secured by related equipment. | 64,449 | 120,661 | |||||||
164,203 | 151,012 | |||||||||
Less current portion | 109,600 | 85,568 | ||||||||
Total long-term debt | $ | 54,603 | $ | 65,444 |
Future maturities of long-term debt are as follows: |
Years ended | Amount | |||||
2012 | $ | 109,600 | ||||
2013 | 54,603 | |||||
$ | 164,203 |
NOTE 6 – COMMITMENTS
Operating Leases
The Company is obligated under operating leases for its corporate office and a sleep lab located in Monroe, GA expiring in December 2012. During 2011 and 2010, the Company had operating leases for a sleep lab in Macon, GA and one in Columbus, GA. The Macon lease terminated in October 2011 and the Columbus lease terminated in November 2012. The locations are now being leased month-to-month.
Aggregate minimum future lease payments are as follows:
Years Ending | Amount | |||||
2012 | $ | 19,947 |
Rent expense approximating $43,000 and $33,000 is included in cost of services for the years ended December 31, 2011 and 2010, respectively.
F-9 |
NOTE 7 – MEMBER’S EQUITY
On June 15, 2011, Michael Dyer, the member owning 50% of SleepHealth North Carolina, LLC, entered into a purchase agreement (“Agreement”) with the Company to sell his ownership interest. Terms of the Agreement included a non-interest bearing note payable in the amount of $108,000 (Note 5), payable as follows: $3,000 payable on June 10, 2011, and the remaining $105,000 payable over the next 30 consecutive months at $3,500 per month. The amount of the note after discounting for imputed interest was $100,075. The note eliminates the equity interest of Michael Dyer. The difference between the discounted note and the carrying value of the equity interest at the time decreased member’s equity.
The purchase of Mr. Dyer’s interest has been accounted for as a change in a noncontrolling interest. No adjustment was made to the carrying amounts of the assets and liabilities of SleepHealth North Carolina, LLC as a result of the acquisition of Mr. Dyer’s interest.
NOTE 8 – RELATED PARTY TRANSACTIONS
In 2004, Children’s Sleep Centers, Inc. was organized as a Georgia Corporation, 80% owned by the Company and 20% by Michael Hibbard. On March 20, 2009, the Company entered into a purchase agreement to acquire Hibbard’s ownership interest for a $53,000 non-interest-bearing promissory note (Note 5), payable at $1,000 per month, beginning April 15, 2009. An imputed interest rate of 6% was applied to this note. No activity ever occurred in Children’s Sleep Centers, Inc. and on September 6, 2010, it was administratively dissolved.
Short-term advances to the Company to fund operations were made by the member in the amounts of $39,000 and $7,500 during 2011 and 2010, respectively. The Company made payments on these advances to the member in the amounts of $29,000 and $23,305 during 2011 and 2010, respectively.
NOTE 9 – MAJOR CUSTOMERS AND VENDORS
Major customers and vendors are defined as a customer or vendor from which the Company derives at least 10% of its revenues and cost of revenues, respectively.
None of the Company’s customers or vendors met the threshold for definition of major customers or major vendors during 2011 or 2010.
NOTE 10 – SUBSEQUENT EVENTS
The Company evaluated subsequent events through December 14, 2012, when these consolidated financial statements were available to be issued. The Company is not aware of any significant events, other than the event described below that would require disclosure or have a material impact on the consolidated financial statements.
On September 13, 2012, the Company entered into an LLC Ownership Interest Purchase Agreement with Vystar Corporation and sold all outstanding membership and ownership interests of the Company for consideration of:
· | $53,734 cash |
· | a promissory note in the principal amount of $33,735 payable in 12 equal monthly payments together with interest at an annual rate of 5% |
· | 636,098 shares of Vystar Corporation Common Stock. |
· | In addition, Vystar Corporation agreed to pay an additional $40,993 in the event that SleepHealth’s EBITDA (earnings before interest, taxes, depreciation and amortization) for the year ended December 31, 2012, is equal to or greater than $129,140. |
F-10 |
SleepHealth, LLC and Subsidiaries | |||||
Consolidated Balance Sheets | |||||
June 30, | |||||
(unaudited) | |||||
ASSETS | ||||||||
2012 | 2011 | |||||||
CURRENT ASSETS | ||||||||
Cash | $ | 22,076 | $ | 27,898 | ||||
Accounts receivable, net of allowance for uncollectible amounts of $49,510 and $20,000 for 2012 and 2011, respectively | 169,605 | 193,544 | ||||||
Prepaid expenses | 9,569 | 19,122 | ||||||
TOTAL CURRENT ASSETS | 201,250 | 240,564 | ||||||
PROPERTY AND EQUIPMENT, NET | 139,629 | 167,233 | ||||||
TOTAL ASSETS | $ | 340,879 | $ | 407,797 | ||||
LIABILITIES AND MEMBER'S EQUITY (DEFICIT) | ||||||||
CURRENT LIABILITIES | ||||||||
Lines of credit | $ | 49,828 | $ | 73,461 | ||||
Accounts payable | 83,691 | 24,150 | ||||||
Accrued compensation and payroll taxes | 85,349 | 23,831 | ||||||
Current maturities of notes payable | 105,143 | 141,520 | ||||||
Advances from member | 34,398 | 9,209 | ||||||
TOTAL CURRENT LIABILITIES | 358,409 | 272,171 | ||||||
Notes payable, net of current maturities | 51,787 | 69,704 | ||||||
TOTAL LIABILITIES | 410,196 | 341,875 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
MEMBER'S EQUITY (DEFICIT) | ||||||||
Member's equity (deficit) | (69,317 | ) | 65,921 | |||||
TOTAL MEMBER'S EQUITY (DEFICIT) | (69,317 | ) | 65,921 | |||||
TOTAL LIABILITIES AND MEMBER'S EQUITY | $ | 340,879 | $ | 407,797 |
F-11 |
SleepHealth, LLC and Subsidiaries
Consolidated Statements of Operations
(unaudited)
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
REVENUE | $ | 298,645 | $ | 312,056 | $ | 579,080 | $ | 631,568 | ||||||||
COST OF REVENUE | 210,663 | 227,907 | 415,295 | 431,243 | ||||||||||||
Gross Profit | 87,982 | 84,149 | 163,785 | 200,325 | ||||||||||||
OPERATING EXPENSES | ||||||||||||||||
General and administrative | 84,881 | 93,028 | 210,806 | 180,353 | ||||||||||||
Total Operating Expenses | 84,881 | 93,028 | 210,806 | 180,353 | ||||||||||||
INCOME (LOSS) FROM OPERATIONS | 3,101 | (8,879 | ) | (47,021 | ) | 19,972 | ||||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||||
Interest expense | (4,093 | ) | (1,945 | ) | (8,463 | ) | (2,865 | ) | ||||||||
NET INCOME (LOSS) | $ | (992 | ) | $ | (10,824 | ) | $ | (55,484 | ) | $ | 17,107 |
F-12 |
SleepHealth, LLC and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Months Ended June 30,
(unaudited)
2012 | 2011 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net (loss) income | $ | (55,484 | ) | $ | 17,107 | |||
Adjustment to reconcile net loss to cash used in operating activities | ||||||||
Depreciation | 29,176 | 43,415 | ||||||
Increase (decrease) in working capital items | ||||||||
Accounts receivable | (6,439 | ) | 40,093 | |||||
Shareholder advances | 21,189 | 6,000 | ||||||
Accounts payable | 52,682 | (3,766 | ) | |||||
Accrued compensation and expenses | 33,238 | (15,631 | ) | |||||
Other | (4,386 | ) | (19,122 | ) | ||||
Net cash provided by operating activities | 69,976 | 68,096 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Cost of equipment | (39,956 | ) | - | |||||
Net cash used in investing activities | (39,956 | ) | - | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Payments on equipment loans | (7,314 | ) | (48,995 | ) | ||||
Proceeds from lines of credit | 4,583 | 5,593 | ||||||
Distributions to member | - | (9,985 | ) | |||||
Payments on loan from former non-controlling interest | (27,237 | ) | (574 | ) | ||||
Net cash used by financing activities | (29,968 | ) | (53,961 | ) | ||||
NET INCREASE IN CASH | 52 | 14,135 | ||||||
CASH - BEGINNING OF YEAR | 22,024 | 13,763 | ||||||
CASH - END OF PERIOD | $ | 22,076 | $ | 27,898 | ||||
Cash paid during the period for interest | $ | 8,463 | $ | 2,865 |
F-13 |
SleepHealth, LLC and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2012 and 2011
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
History and Nature of Business
SleepHealth, LLC (the “Company”) was organized in 2002 by Ailene Miller as a limited liability company in the state of Georgia. Ms. Miller is the sole owner of SleepHealth, LLC. The Company provides sleep management services to patients in hospitals and physicians’ offices in the state of Georgia.
SleepHealth North Carolina, LLC was organized in 2007 as a limited liability company, also in the state of Georgia, and was owned equally by the Company and Michael Dyer. SleepHealth North Carolina, LLC provides sleep management services to patients in hospitals and physicians’ offices in the states of North Carolina and South Carolina. In June 2011, the Company purchased Mr. Dyer’s ownership interest in SleepHealth North Carolina, LLC (Note 7).
Principles of Consolidation
The consolidated financial statements are composed of SleepHealth, LLC, SleepHealth North Carolina, LLC, SleepHealth Texas, LLC, (“Texas”), SleepHealth Partners, LLC and Children’s Sleep Centers, Inc. (collectively “the Company”). All material intercompany transactions have been eliminated. Operations for SleepHealth Texas, LLC were discontinued in 2010 and it was administratively dissolved in September 2012. Revenue from Texas was never material and a separate presentation of discontinued operations has not been provided. SleepHealth Partners, LLC and Children’s Sleep Centers, Inc. had no activity during 2010 when both entities were administratively dissolved.
Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles of the United States of America (“GAAP”) for interim financial information in accordance with Securities and Exchange Commission ("SEC") rules and regulations. Accordingly, certain information and footnotes required by GAAP for complete financial statements may be condensed or omitted. These interim financial statements should be read in conjunction with our audited financial statements and notes thereto included above. In the opinion of management, these financial statements contain all adjustments (which comprise only normal and recurring accruals) necessary to present fairly the financial position and results of operations as of and for the three and six month periods ended June 30, 2012 and 2011.
These interim consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern. The audit report relating to the Consolidated Financial Statements for the year ended December 31, 2011 and 2010 contain an explanatory paragraph regarding the Company’s ability to continue as a going concern.
NOTE 2 – REVENUE
Revenue is attributable to fees for providing services, primarily sleep disorder testing, therapeutic titrations and clinical management. Most agreements include a fee per patient and type of study performed. The agreements may also include a fixed monthly fee for equipment. Fees associated with services are recognized in the period services are rendered and earned under service arrangements with clients where service fees are fixed or determinable and collectability is reasonably assured. Service fees are determined based on written price quotations or service agreements having stipulated terms and conditions that do not require management to make any significant judgments or assumptions regarding any potential uncertainties.
NOTE 3 – SUBSEQUENT EVENTS
The Company evaluated subsequent events through December 14, 2012, when these consolidated financial statements were available to be issued. The Company is not aware of any significant events, other than the event described below that would require disclosure or have a material impact on the consolidated financial statements.
F-14 |
On September 13, 2012, the Company entered into an LLC Ownership Interest Purchase Agreement with Vystar Corporation and sold all outstanding membership and ownership interests of the Company for consideration of:
· | $53,734 cash |
· | a promissory note in the principal amount of $33,735 payable in 12 equal monthly payments together with interest at an annual rate of 5% |
· | 636,098 shares of Vystar Corporation Common Stock. |
· | In addition, Vystar Corporation agreed to pay an additional $40,993 in the event that SleepHealth’s EBITDA (earnings before interest, taxes, depreciation and amortization) for the year ended December 31, 2012, is equal to or greater than $129,140. |
F-15 |