| (2) Basis of Presentation | Basis of Presentation The Company, previously an operating stage company,
became a development stage company on April 1, 2012. A development stage company, as defined by ASC-915-10 Accounting and
Reporting by Development Stage Enterprise, is an entity that devotes substantially all of its efforts to establish a business
and either of the following conditions exists: 1) the principal operations have not commenced, or 2) the principal operations have
commenced, but there has been no significant revenue therefrom. As noted herein, the Company has elected early adoption of ASU
2014-10 whereby the Company has removed all amounts and disclosures related to the development stage. The unaudited condensed consolidated financial
statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).
The accompanying unaudited condensed consolidated financial statements do not include complete footnotes and financial statement
presentations. As a result, these unaudited condensed consolidated financial statements should be read along with the audited consolidated
financial statements and notes thereto for the year ended December 31, 2014, included in our 2014 Annual Report on Form 10-K. In
our opinion, the unaudited condensed consolidated financial statements reflect all adjustments, including normal recurring adjustments,
necessary for a fair presentation of the financial position, results of operations and cash flows for those periods presented.
The preparation of financial statements in conformity with United States (U.S.) generally accepted accounting principles requires
management to make estimates and assumptions that affect reported assets, liabilities, revenues and expenses, as well as disclosure
of contingent assets and liabilities. Actual results could differ from those estimates and assumptions. Moreover, the results of
operations for the interim periods presented are not necessarily indicative of the results that may be expected for the entire
year. The Company maintains a website at www.appliedvs.com,
These unaudited condensed consolidated financial
statements have been prepared assuming that the Company will continue as a going concern and, accordingly, do not include any adjustments
that might result from the outcome of this uncertainty. Our independent registered public accounting firms reports on the
consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2014, contains an
explanatory paragraph wherein it expressed an opinion that there is substantial doubt about our ability to continue as a going
concern. Accordingly, careful consideration of such opinion should be given in determining whether to continue or become our stockholder. Summary of Significant Accounting
Policies Development Stage Company The Company, previously an operating stage company,
became a development stage company on April 1, 2012. A development stage company, as defined by ASC-915-10 Accounting and
Reporting by Development Stage Enterprise, is an entity that devotes substantially all of its efforts to establish a business
and either of the following conditions exists: 1) the principal operations have not commenced, or 2) the principal operations have
commenced, but there has been no significant revenue therefrom. The Company has elected early adoption of ASU 2014-10 whereby the
Company has removed all amounts and disclosures related to the development stage. Principles of Consolidation The accompanying consolidated financial statements
include the accounts of the Company and its subsidiaries, Guardian Technologies International, Inc., Signature Mapping Medical
Sciences, Inc., Instasis Imaging, Inc., RJL Marketing Services, Guardian Healthcare Systems UK, Ltd., and Wise Systems Ltd., in
which it has the controlling interest. Subsidiaries acquired are consolidated from the date of acquisition. All significant intercompany
balances and transactions have been eliminated. Certain amounts in the consolidated financial statements of prior periods have
been reclassified to conform to current period presentation. Estimates The preparation of these consolidated financial
statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements. Changes in these estimates and assumptions may have
a material impact on the consolidated financial statements. Certain estimates and assumptions are particularly sensitive to change
in the near term, and include estimates of net realizable value for long-lived and intangible assets, the valuation allowance for
deferred tax assets and the assumptions used for measuring stock-based payments and derivative liabilities. The Company reviews the terms of convertible
debt and equity securities for indications requiring bifurcation, and separate accounting, for the derivative liability feature.
Under guidelines of ASC 815-40, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in,
a Companys Own Stock, public companies that are required, or that could be required, to deliver shares of common
stock as part of a physical settlement or a net-share settlement, under a freestanding financial instrument, are required to initially
measure the contract at fair value (or allocate on a fair value basis if issued as part of a debt financing), and report the value
in permanent equity. However, in certain circumstances (e.g. the company could not ascertain whether sufficient authorized shares
exist to settle the contract), permanent equity classification should be reassessed. The classification of the contract as permanent
equity should be reassessed at each balance sheet date and, if necessary, reclassified as a liability on the date of the event
causing the reclassification. If a reclassification occurs from permanent equity to a liability, the fair value of the financial
instrument should be removed from permanent equity as an adjustment to stockholders deficit. Any portion of the contract
that could be net-share settled as of the balance sheet date would remain classified in permanent equity. Subsequent to the initial
reclassification event, changes in fair value of the instrument are charged to expense until the conditions giving rise to the
reclassification are resolved. When a company has more than one contract subject to reclassification, it must determine a method
of reclassification that is systematic, rational, and consistently applied. The Company adopted a reclassification policy that
reclassifies contracts with the latest inception date first. To the extent that changes in fair value of equity instruments relates
to financings since November 8, 2006 (the date of first closing under the debenture financing with reset provisions that made the
number of potentially issuable shares indeterminable), the increase or decrease in the fair value of the warrants is charged or
credited to interest expense. To the extent the equity instruments relate to other transactions (e.g. consulting expense), the
increases or decreases are charged or credited based on the nature of the transaction. The number of additional shares potentially
issuable under the November 8, 2006, outstanding convertible debentures and related outstanding warrants and other subsequent warrants
issued was determinable as of the debentures final milestone reset date on May 20, 2008, and, therefore, the outstanding
fair value of the warrants issued to the debenture holders, other subsequent warrants issued through May 20, 2008, and the warrants
related beneficial conversion feature were reclassified as stockholders deficit in accordance with currently effective generally
accepted accounting principles. Reclassifications Certain reclassifications of previously reported
amounts have been made to conform to the current period presentation. These classifications had no effect on the previously reported
net loss. Segment Information ASC 280-10, Disclosures about Segments
of an Enterprise and Related Information, establishes standards for the manner in which public companies report information
about operating segments in annual and interim financial statements. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The method for determining what information to report is based on
the way management organizes the operating segments within the Company for making operating decisions and assessing financial performance.
The Companys chief operating decision-maker is considered to be the Companys chief executive officer (CEO).
The CEO reviews financial information presented on an entity level basis accompanied by disaggregated information about revenues
by product type and certain information about geographic regions for purposes of making operating decisions and assessing financial
performance. The entity level financial information is identical to the information presented in the accompanying consolidated
statements of operations. The Company has two groups of products and services
- Security (PinPoint) and Healthcare (Signature Mapping Medical Computer Aided Detection (Medical CAD)).
The Company has determined that as a result of no revenue generated for the three months ended March 31, 2015, and the same period
last year, we operate under one business unit in The Americas, and have pursued one product line, Healthcares Tuberculosis
Detection (TBDx) software in South Africa, India, Nigeria, and Peru. Stock-Based Compensation On January 1, 2006, the Company adopted the
provisions of ASC 718-10, which requires recognition of stock-based compensation expense for all share-based payments based on
fair value. Prior to January 1, 2006, the Company measured compensation expense for its employee stock based compensation plans
using the intrinsic value method. Under ASC 718-10, when the exercise price of the Companys employee stock options equals
the market price of the underlying stock on the date of grant, no compensation expense is recognized. The Company applied the disclosure
provisions of ASC 718-10 as if the fair value-based method had been applied in measuring compensation expense for those years.
ASC 718-10 required that the Company provide pro forma information regarding net earnings and net earnings per common share as
if compensation expense for its employee stock-based awards had been determined in accordance with the fair value method prescribed
therein. The Companys estimated forfeiture rates are based on its historical experience within separate groups of employees.
In accordance with ASC 718-10, the Company recognized total stock-based compensation expense for employees and non-employee members
of the Board of Directors for the three months ended March 31, 2015 and 2014, of $0, and $10,255, respectively. ASC 718-10, Share-Based Payment
defines fair value-based methods of accounting for stock options and other equity instruments. The Company has adopted the
method, which measures compensation costs based on the estimated fair value of the award and recognizes that cost over the service
period. ASC 505-50, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction
with Selling, Goods, or Services (ASC 505-50), establishes the measurement principles for transactions in
which equity instruments are issued in exchange for the receipt of goods or services. The Company has relied upon the guidance
provided under ASC 505-50 to determine the measurement date and the fair value re-measurement principles to be applied. Based on
these findings, the Company determined that the unamortized portion of the stock compensation should be re-measured on each interim
reporting date and proportionately amortized to stock-based compensation expense for the succeeding interim reporting period until
goods are received or services are performed. The Company recognizes compensation costs, net of an estimated forfeiture rate, on
a pro rata basis over the requisite service period of each vesting tranche of each award. The Company considers voluntary termination
behavior as well as trends of actual option forfeitures when estimating the forfeiture rate. Total stock-based compensation expense
for consultants during the three months ended March 31, 2015, and 2014 was $0, and $0, respectively. The Black-Scholes option valuation model was
developed for use in estimating the fair value of traded options, which have no vesting restrictions and are not transferable.
The fair value of each option granted was estimated on the date of grant using the Black-Scholes Merton option pricing model (Black-Scholes
model) with the following weighted-average assumptions.
Black-Scholes Model Assumptions 2015 2014
Risk-free interest rate (1) 1.84% 2.48%
Expected volatility (2) 206.5% 184.8%
Dividend yield (3) 0.0% 0.0%
Expected life (4) 6.5 years 7.2 years
(1) The risk-free interest rate is based on US Treasury debt
securities with maturities similar to the expected term of the option.
(2) Expected volatility is based on historical volatility of
the Companys stock factoring in daily share price observations.
(3) No cash dividends have been declared on the Companys
common stock since the Companys inception, and the Company currently does not anticipate paying cash dividends over the
expected term of the option.
(4) The expected term of stock option awards granted is derived
from historical exercise experience under the Companys stock option plan and represents the period of time that stock option
awards granted are expected to be outstanding. The expected term assumption incorporates the contractual term of an option grant,
which is usually ten years, as well as the vesting period of an award, which is generally pro rata vesting over two years. The Amended and Restated 2003 Stock Incentive
Plan The Board of Directors adopted the 2003 Stock
Incentive Plan on August 29, 2003, and terminated on August 29, 2013. Therefore, no shares of common stock are available for future
awards. The termination of the plan does not affect the outstanding options granted without the consent of the optionee. As of
March 31, 2015, the Company has reserved under the 2003 plan 22,056,992 shares to be issued upon exercise of outstanding options
granted to all employees, including its named executives. The Board of Directors amended and restated
the plan on December 2, 2003. The Amended and Restated 2003 Stock Incentive Plan (2003 Plan) was approved by the
shareholders on February 13, 2004, pursuant to which it grants stock-based compensation in the form of options, which could result
in the issuance of up to an aggregate of 30,000,000 shares of the Companys common stock. The aggregate number of shares
and the number of shares in an award (as well as the option price) may be adjusted if the outstanding shares of the Company are
increased, decreased or exchanged through merger or other stock transaction. The Plan provides for options which qualify as Incentive
Stock Options under Section 422 of the Internal Revenue Code of 1986, as well as the issuance of Non-Qualified Options, which do
not so qualify. Pursuant to the terms of the 2003 Plan, the Company, as determined by to
its executive officers, non-employee directors, or consultants of the Company and its subsidiaries at any time, and from time to
time. any
officer or other employee of the Company or its subsidiaries at any time, and from time to time, not be less than Factors considered in granting stock options
included: (i) the general policy during the past five, and in the foreseeable future, of not increasing base salaries of all employees,
(ii) the performance of employees, (iii) the employees increasing responsibilities in a dynamic, and shrinking organization,
and (iv) the accomplishments achieved by the Company during the prior year. The 2003 Plan has been the principal method for our
employees and executive officers to acquire equity interests in the Company. We believe that the annual aggregate value of these
awards should be set near competitive median levels for comparable companies. We may provide a greater portion of total compensation
to our executives and employees through stock options given the general policy of not increasing base salaries in the foreseeable
future. Our Compensation Committee administers the 2003 Plan based on the above factors, and considers managements recommendation
and discussions with the Committee. There were no stock options granted to employees during the three months ended March 31, 2015,
as well as no stock options granted to new employees during the same period as there were no new employees hired. Options granted under the Plan must be evidenced
by a stock option agreement in a form consistent with the provisions of the 2003 Plan. Each
option shall expire on the earliest of (a) ten (10) years from the date it is granted, (b) sixty (60) days after the optionee dies
or becomes disabled, (c) immediately upon the optionee's termination of employment or service or cessation of Board service, whichever
is applicable, or (d) such date as the Committee shall determine, as set forth in the relevant option agreement; provided, however,
that no ISO which is granted to an optionee who, at the time such option is granted, owns stock possessing more than ten (10) percent
of the total combined voting power of all classes of stock of the Company or any of its subsidiaries, shall be exercisable after
the expiration of five (5) years from the date such option is granted. To exercise an option, the 2003 Plan participant,
in accordance with the relevant option agreement, must provide the Company a written notice setting forth the number of options
being exercised and their underlying shares, and tender an amount equal to the total exercise value of the options being exercised.
The right to purchase shares is cumulative so that once the right to purchase any shares has vested; those shares or any portion
of those shares may be purchased at any time thereafter until the expiration or termination of the option. ISOs and NQSOs that
are not exercised in accordance with the terms and provisions of the stock option agreement, or as amended, will expire as to any
then unexercised portion. Stock options that expire, are cancelled, or forfeited will again become available for issuance under
the 2003 Plan as described below. The aggregate number of shares and the number of shares in an award (as well as the option price)
may be adjusted if the outstanding shares of the Company are increased, decreased or exchanged through merger or other stock transaction.
The shares issued by the Company under the 2003 Plan may be either treasury shares or authorized but unissued shares as the Companys
board of directors or the Compensation Committee may determine from time to time. Except as specifically provided in an option
agreement, options granted under the 2003 Plan may not be sold, pledged, transferred or assigned in any way, except by will or
by the laws of descent and distribution, and during the lifetime of a participant to whom the ISOs is granted, and the ISOs may
only be exercised by the participant. Stock Options Exercised under the 2003 Plan There were no stock options exercised during
the three months ending March 31, 2015. Summary of stock option activity under the
2003 Plan for the three months ended March 31, 2015 issued to employees, non-employee members of the Board of Directors and consultants
is as follows:
Fiscal Year and Activity Weighted- Average Exercise Price Number of Options
Outstanding December 31, 2014 $ 0.14 22,056,992
Fiscal 2015 activity
Granted - -
Exercised - -
Cancelled - -
Outstanding March 31, 2015 0.14 22,056,992
Reserved for future issuance at March 31, 2015 (the 2003 Plan expired on August 29, 2013) - The following table summarizes additional information
about the 2003 Plan stock options outstanding at March 31, 2015:
Issued and Outstanding Exercisable
Type of Option and Range of Exercise Prices Number of Options Weighted-Average Remaining Contractual Life (Yrs) Weighted-Average Exercise Price Number of Options Weighted-Average Price
Nonqualified Stock Options $0.30 (1) (4) 25,000 0.5 0.30 25,000 0.30
Incentive Stock Options $0.15 - $4.05 (2) (4) 649,300 2.6 0.98 649,300 0.98
Incentive Stock Options $0.15 - $0.30 (3) (4) 21,382,692 6.3 0.11 21,382,692 0.11
Total 22,056,992 6.2 $ 0.14 22,056,992 $ 0.13
(1) Issued to directors below fair value and during the period
of February 2004 to September 2005.
(2) Issued to consultants at fair value.
(3) Issued to directors and employees at fair value, or above
fair value for those individuals with greater than 10% beneficial ownership.
(4) The exercise price reflects the repricing of stock options
as approved by the Compensation Committee on April 24, 2010, and subsequent issuances at fair value on the date of grant. The 2009 Stock Compensation Plan On June 4, 2009, the Board of Directors adopted
the 2009 Stock Compensation Plan (2009 Plan) which provides for the grant or issuance of up to an aggregate of 20,000,000
shares of the Companys common stock pursuant to non-qualified stock options (NQSOs), restricted stock awards
(RSAs), restricted stock rights (RSRs), or common stock awards (Common Stock Awards)
(a NQSO, RSA, RSR or Common Stock Award, individually, an Award; collectively, Awards). Our Board of
Directors has delegated its authority to administer the 2009 Plan to the Compensation Committee. The exercise price of NQSOs may
not be less than 100% of the fair market value of the stock on the date of the option grant, and may only be exercised at such
times as may be specified by the Committee and provided for in an award agreement, but may not be exercised after ten years from
the date on which it was granted. RSAs and RSRs consist of a specified number of shares of the Companys Common Stock that
are, or may be, subject to restrictions on transfer, conditions of forfeiture, and any other terms and conditions for periods determined
by the Committee. Generally, unless the Committee determines otherwise, once the restricted stock vests, the shares of Common Stock
specified in the Award will be free of restriction, subject to any applicable lock up period. Prior to the termination of the restrictions,
under a RSA (but not a RSR), a participant may vote and receive dividends on the restricted stock unless the Committee determines
otherwise, but may not sell or otherwise transfer the shares. Common Stock Awards under the plan may be issued free of restriction
and may vest immediately; however, the Committee may impose vesting and other restrictions related to the grant of such common
stock Awards. Compensation expense for these Awards is recognized over the period they vest, although generally Common Stock Awards
vest immediately, while the RSAs, RSRs and NQSOs will have a vesting period. The purpose of the 2009 Plan is to foster our
success and the success of our subsidiaries and affiliates by providing incentives to employees, directors, officers and consultants
to promote our long-term financial success. The Plan complements our 2003 Amended and Restated Stock Incentive Plan (the 2003
Plan) and provides greater flexibility to us in that it permits us to compensate and award employees, directors, officers
and consultants through the issuance of certain options, RSAs, RSRs, and stock awards in addition, or as an alternative, to the
incentive and non-qualified stock options that may be awarded under the 2003 Plan. The 2009 Plan terminates on June 4, 2019, and
no award may be made after that date, however, awards made before that date may extend beyond that date. If an award under the
2009 Plan is cancelled, expires, forfeited, settled in cash or otherwise terminates without being exercised in full, the shares
of common stock not acquired pursuant to the award will again become available for issuance under the 2009 Plan. The Board may
amend, terminate, or modify the 2009 Plan at any time, without shareholder approval, unless required by the Internal Revenue Code
of 1986, pursuant to Section 16 under the Securities Exchange Act of 1934, as amended, or by any national securities exchange or
system on which our common stock is then listed or reported, or by any regulatory body. Subject to the provisions of the 2009 Plan,
the Compensation Committee has the power to:
· Prescribe, amend, and rescind rules and regulations
relating to the 2009 Plan and to define terms not otherwise defined therein;
· Determine which persons are eligible to participate,
to which of such participants, if any, awards shall be granted, and the timing of any such awards;
· Grant awards to participants and determine
the terms and conditions thereof, including the number of shares subject to awards and the exercise or purchase price of such shares
and the circumstances under which awards become exercisable or vested or are forfeited or expire;
· Establish any performance goals or other
conditions applicable to the grant, issuance, exercisability, vesting and/or ability to retain any award;
· Prescribe and amend the terms of the agreements
or other communications evidencing awards made under the 2009 Plan (which need not be identical) and the terms or form of any document
or notice required to be delivered to us by participants under the 2009 Plan;
· Determine the appropriate adjustment, if
any, required as a result of any reorganization, reclassification, combination of shares, stock split, reverse stock split, spin-off
or dividend (other than regular, quarterly cash dividends), or other changes in the number or kind of outstanding shares or any
stock or other securities into which such shares shall have been exchanged;
· Interpret and construe the 2009 Plan, any
rules and regulations under the 2009 Plan and the terms and conditions of any award granted thereunder, and to make exceptions
to any such provisions in good faith and for the benefit of the Company; and
· Make all other determinations deemed necessary
or advisable for the administration of the 2009 Plan. Unless the Board expressly provides otherwise
prior to a change of control or in an award agreement, in the event of a change of control of the Company, all outstanding options
under the 2009 Plan vest and become exercisable on the date immediately before the change of control and all restrictions under
RSAs and RSRs shall lapse or be deemed satisfied on the date immediately prior to the change of control. A change of control is
deemed to have occurred upon the occurrence of one of the following events: (i) any person or group of persons becomes the beneficial
owner of shares of the Company to which 50% or more of the total number of votes for the election of directors may be cast; (ii)
as a result of a cash tender offer, exchange offer, merger or other business combination, sale of assets or contested election,
persons who were directors immediately prior to the event cease to constitute a majority of the board; (iii) stockholders approve
an agreement providing either that the Company will cease to be an independent publicly owned corporation or for sale or other
disposition of all or substantially all the assets of the Company; or (iv) a tender offer or exchange offer is made for shares
of our common stock (other than one made by us) and shares of common stock are acquired. The Compensation Committee determines all awards
to non-employee directors and such awards are not subject to managements discretion. From time to time, the committee will
set the amount and the type of award that will be granted to non-employee directors on a periodic, nondiscriminatory basis, including
pursuant to any plan adopted by the Compensation Committee or Board for the compensation of non-employee directors. The committee
may set additional awards to be granted to non-employee directors also on a periodic, nondiscriminatory basis based on one or more
of the following criteria: (i) service as the chair of a Board committee; (ii) service as chairman of the Board; (iii) the
number or type of Board committees on which a director serves; or (iv) the first selection or appointment of an individual
to the Board. Non-qualified stock options may be granted pursuant
to non-qualified stock option award agreements and certificates adopted by the Board, as amended by the Compensation Committee.
The Compensation Committee determines the terms of each stock option granted under the 2009 Plan, including the number of shares
covered by an option, exercise price and means of payment, the vesting and exercisability of the option, and restrictions on transfer
and the term. The exercise price of an option granted under the Plan may not be less than the fair market value on the date of
option grant and may only be exercised at such times as may be specified by the Committee and provided for in an award agreement.
The options expire on the earliest of ten years after the date of grant, 90 days after the death or disability of the recipient,
immediately upon termination of employment or service other than by death or disability, or such date as the Compensation Committee
determines. The Compensation Committee, in its sole discretion, may change by agreement the post-termination rights of a recipient,
including accelerating the date or dates on which the option becomes vested and is exercisable following termination of employment
or service, or extend the period. Options granted under the plan may be exercised by delivering cash, a cashless exercise, or by
delivering to us the proceeds of shares of our common stock issuable under an option. Compensation expense for non-qualified stock
options is recognized over the period they vest. An award of restricted stock consists of a specified
number of shares of our common stock that are, or may be, subject to restrictions, forfeiture conditions, and any other terms and
conditions for periods determined by the Committee. The Compensation Committee has discretion to determine the terms of any award
of restricted stock, including the number of shares subject to the award, and the minimum period over which the award may vest,
and the acceleration of any vesting in the event of death, disability or change of control. RSAs are not transferable or assignable
unless provided otherwise by the Compensation Committee with respect to certain specified family-related transfers. Unless the
Committee determines otherwise, once the restricted stock vests, the shares of common stock specified in the Award will be free
of restriction, subject to any applicable lock up period. Prior to the termination of the restrictions under a RSA, a participant
may vote and receive dividends on the restricted stock unless the Committee determines otherwise, but may not sell or otherwise
transfer the shares until such time as the restrictions of the award have been satisfied. Compensation expense for restricted stock
awards is recognized over the period they vest. An award of restricted stock rights entitles
a participant to receive a specified number of shares of our common stock that are, or may be, subject to restrictions, forfeiture
conditions, and any other terms and conditions for periods determined by the Committee. It may also include the right to dividend
equivalents if and as so determined by the committee. The Compensation Committee has discretion to determine the terms of any award
of restricted stock or RSRs, including the number of shares subject to the award, and the minimum period over which the award may
vest, and the acceleration of any vesting in the event of death, disability or change of control. RSRs are not transferable or
assignable unless provided otherwise by the Compensation Committee with respect to certain specified family-related transfers.
Unless the committee determines otherwise, once a RSR vests, the shares of common stock specified in the award will be issued to
the participant. A participant who has been awarded RSRs may not vote the shares of common stock subject to the rights until the
shares are issued. Until the vesting period applicable to a RSRs award expires and the shares are issued, the participant also
may not transfer or encumber any interest in the RSRs or in any related dividend equivalents. Compensation expense for restricted
stock rights is recognized over the period they vest. The Compensation Committee may also make sto |
