PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
REMOTEMDX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
December 31,
2005
-------------
Assets
Current assets:
Cash $ 1,212,968
Accounts receivable, net of allowance for doubtful accounts of $23,000 93,623
Inventories 38,169
Restricted cash 181,564
Prepaid expenses 37,299
Total current assets 1,563,623
Property and equipment, net of accumulated depreciation and amortization
of $513,339 381,657
Other assets 43,098
-------------
Total assets $ 1,988,378
Liabilities and Stockholders' (Deficit)
Current liabilities:
Bank line of credit $ 174,475
Related party line of credit and note, net debt discount of $3,750 (note 5) 252,113
Accounts payable 1,494,226
Accrued liabilities 497,508
Dividends payable 124,461
Deferre drevenue 17,757
Convertible debentures, net of debt discount of $28,087 (note 6) 1,290,452
Notes payable, net of debt discount of $692 (note 3) 780,697
Common stock subject to mandatory redemption 96,000
Embedded derivative liability (note 8) 2,926,527
Redeemable SecureAlert Series A Preferred Stock (note 7) 358,410
Total current liabilities 8,012,626
Long term liabilities
Convertible debentures, net of discountof $814,722 (note 3) 656,196
-------------
Total liabilities 8,668,822
SecureAlert Series A Preferred Stock 2,990,000
Stockholders' deficit:
Preferred stock:
Series A; 10% dividend, convertible, non-voting; $0.0001 par value;
40,000 shares designated; 21,786 shares outstanding (aggregate liquidation
preference of $59,605) 2
Series B; convertible; $0.0001 par value; 2,000,000 shares designated;
272,332 shares outstanding (aggregate liquidation preference of $816,996) 27
Common stock; $0.0001 par value; 100,000,000 shares authorized,
54,416,288 shares outstanding 5,442
Additional paid-in capital 78,106,677
Deferred compensation (3,873,144)
Accumulated deficit (83,909,448)
-------------
Total stockholders' deficit (9,670,444)
-------------
Total liabilities and stockholders' deficit $ 1,988,378
-------------
See accompanying notes to unaudited condensed consolidated financial statements.
Q-3
REMOTEMDX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
December 31,
2005 2004
---------------- ---------------
Net sales $ 219,493 $ 207,519
Cost of goods sold 107,143 147,084
------------------- ---------------
Gross profit 112,350 60,435
Operating expenses
Research and development expenses 729,933 204,730
Selling, general and administrative expenses (including $451,820 and
$123,525 of compensation expense paid in stock or stock option /
warrants, respectively.) 1,743,612 933,335
---------------- ---------------
Loss from operations (2,361,195) (1,077,630)
Other income (expense):
Derivative valuation gain (loss) (490,901) -
Other income (expense) 2,000 (30)
Interest income 1,253 817
Interest expense (596,910) (238,983)
---------------- ---------------
Loss before income taxes (3,445,753) (1,315,826)
Income tax benefit - -
---------------- ---------------
Net loss (3,445,753) (1,315,826)
Dividends on Series A preferred stock (124,461) (128,649)
---------------- ---------------
Net loss attributable to common shareholders $ (3,570,214) $ (1,444,475)
================ ===============
Net loss per common share - basic and diluted $ (0.08) $ (0.05)
================ ===============
Weighted average common shares outstanding - basic and diluted 47,166,000 31,455,000
================ ===============
See accompanying notes to unaudited condensed consolidated financial statements.
Q-4
REMOTEMDX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
December 31,
2005 2004
---------------- ---------------
Cash flows from operating activities:
Net loss $ (3,445,753) $ (1,315,826)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 16,427 6,065
Derivative liability valuation 490,901 -
Common stock issued for services 27,000 -
Common stock issued for interest 63,366 -
Amortization of deferred financing and consulting costs 562,937 127,575
Accretion of interest expense related to redeemable common stock
and debt 154,584 -
Amortization of debt discount 139,252 27,000
Stock options issued for services - 133,397
Increase in related party line of credit for services 175,562 128,594
Changes in operating assets and liabilities:
Increase in restricted cash (1,461) (753)
Accounts receivable, net 3,158 155,734
Inventories 8,407 (10,998)
Prepaid expenses (4,164) 1,715
Accounts payable 139,176 141,319
Accrued liabilities (191,517) 62,442
Deferred revenue 218 (504)
---------------- ---------------
Net cash used in operating activities (1,861,907) (544,240)
---------------- ---------------
Cash flows used in investing activities - purchase of property and equipment (17,369) (4,220)
---------------- ---------------
Cash flows from financing activities:
Net (repayments) borrowings under related-party line of credit (192,314) (12,596)
Net borrowings (payments) on bank line of credit (423) -
Decrease in subscription receivable 504,900 -
Proceeds from issuance of common stock, net of $35,000 commissions 700,000 -
Proceeds from the issuance of subsidiary preferred stock 600,000 260,000
Proceeds from issuance of notes payable and convertible debentures 1,075,000 500,000
Payments on notes payable (10,955) (144,500)
---------------- ---------------
Net cash provided by financing activities 2,676,208 602,904
---------------- ---------------
Net increase in cash 796,932 54,444
Cash, beginning of period 416,036 62,103
---------------- ---------------
Cash, end of period $ 1,212,968 $ 116,547
================ ===============
See accompanying notes to unaudited condensed consolidated financial statements.
Q-5
REMOTEMDX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
Three Months Ended
December 31,
2005 2004
---------------- ---------------
Cash paid for interest and taxes:
Cash paid for income taxes $ - $ -
Cash paid for interest 43,400 14,649
Supplemental schedule of non-cash investing and financing activities:
Issuance of shares of common stock in exchange for shares of Series A
preferred stock 1 1
Accrual of Preferred Series A stock dividends 124,461 128,649
Common stock issued for deferred financing costs 721,050 8,100
See accompanying notes to unaudited condensed consolidated financial statements.
Q-6
REMOTEMDX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) ORGANIZATION AND NATURE OF OPERATIONS
Basis of Presentation
The accompanying condensed consolidated financial statements of the Company have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States have been
condensed or omitted pursuant to such rules and regulations. These condensed
consolidated financial statements reflect all adjustments (consisting only of
normal recurring adjustments) that, in the opinion of management, are necessary
to present fairly the results of operations of the Company for the periods
presented. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto
included in the Company's Form 10-KSB for the year ended September 30, 2005. The
results of operations for the three months ended December 31, 2005 are not
necessarily indicative of the results that may be expected for the fiscal year
ending September 30, 2006.
Going Concern
The Company has recurring net losses, has negative cash flows from operating
activities and has a working capital deficit, a stockholders' deficit and an
accumulated deficit. These factors raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Management's plans with respect to this uncertainty include converting debt
obligations to equity and raising additional capital from the sale of equity
securities, obtaining debt financing and enhance revenues and cash flows from
its operations by increasing selling and marketing efforts related to new and
existing products and services.
There can be no assurance that the Company will be able to raise sufficient
capital to meet its working capital needs. In addition, there can be no
assurance that the operations will generate positive cash flows and that the
Company will be economically successful from increasing selling and marketing
efforts to introduce new products into the market. Further, the Company may be
unable to complete the development and successful commercialization of any new
remote health monitoring products.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the
Company and its wholly or majority-owned subsidiaries. All significant
inter-company transactions have been eliminated in consolidation.
Stock-Based Compensation
The Company accounts for its stock-based compensation issued to employees and
directors under Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees," and related interpretations. Under APB No. 25,
compensation related to stock options, if any, is recorded if an option's
exercise price on the measurement date is below the fair value of the Company's
common stock and amortized to expense over the vesting period.
An alternative method to the intrinsic value method of accounting for
stock-based compensation is the fair value based method prescribed by Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." If the Company used the fair value
based method, the Company would be required to record deferred compensation
based on the fair value of the stock option at the date of grant as computed
using an option-pricing model, such as the Black-Scholes option pricing model.
The deferred compensation calculated under the fair value based method would
then be amortized over the vesting period of the stock option. The Company
awarded no stock options to employees and had no employee stock options vest
during the periods ended December 31, 2005 and 2004.
Q-7
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment when events or changes
in circumstances indicate that the book value of an asset may not be
recoverable. The Company evaluates, at each balance sheet date, whether events
and circumstances have occurred which indicate possible impairment. The Company
uses an estimate of future undiscounted net cash flows of the related asset or
group of assets over the estimated remaining life in measuring whether the
assets are recoverable.
Net Loss Per Common Share
Basic net loss per common share ("Basic EPS") is computed by dividing net loss
available to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted net loss per common share ("Diluted EPS")
is computed by dividing net loss by the sum of the weighted-average number of
common shares outstanding and the weighted-average dilutive common share
equivalents then outstanding. The computation of Diluted EPS does not assume
exercise or conversion of securities that would have an anti-dilutive effect.
Common share equivalents consist of shares issuable upon the exercise of common
stock options and warrants, and shares issuable upon conversion of preferred
stock. Common share equivalents does not include shares from conversion of debt
since the number of shares are yet to be determined. As of December 31, 2005 and
2004, there were approximately 22,840,255 and 18,335,000 outstanding common
share equivalents, respectively, that were not included in the computation of
diluted net loss per common share as their effect would be anti-dilutive.
Revenue Recognition
The Company derives its revenue primarily from the sale of mobile emergency and
personal security systems and reagent stains.
The sale of mobile emergency and personal security systems may include the
security device, such as the MobilePal phone, and the related monitoring
service. If the sale includes both the device and the monitoring service,
revenue from the sale of the device is deferred and recognized ratably over the
life of the monitoring service contract. Revenue from the monitoring service
contract is recognized monthly as earned in accordance with the monitoring
service contract. If the sale is for the device only and does not include the
monitoring services, revenue, less reserves for returns, is recognized upon
shipment to the customer. The Company records reserves for estimated returns of
defective product. Amounts received in advance of shipment are recorded as
deferred revenue. Shipping and handling fees are included as part of net sales.
The related freight costs and supplies directly associated with shipping
products to customers are included as a component of cost of goods sold.
The sale of reagent stains is recognized when an agreement with the buyer
exists, the price is fixed or determinable, the product has been shipped, and
collection is reasonably assured.
(2) INVENTORIES
Substantially all items included in inventory were finished goods and consist of
the following as of December 31, 2005:
Mobile emergency and personal security systems,
net of reserve of $63,696 $ 7,244
Reagent Stains 30,925
Total inventory $ 38,169
(3) NOTES PAYABLE
Notes payable at December 31, 2005 consisted of the following:
Current liabilities:
Q-8
Unsecured note payable to a corporation with interest at
5%. The note was due December 20, 2005. This
note is in default. $ 95,830
Unsecured notes payable to former SecureAlert
shareholders, with interest at 5%, payable in
installments of $80,000 per month until paid in full.
These notes are currently in default. 169,676
Unsecured note payable to an entity. The note has
a monthly payment of $1,985. The loan bears no
interest, but has been imputed at 12%. The note is
due September 18, 2006. As of December 31, 2005,
the unamortized debt discount was $692. 15,191
Convertible notes payable to entities with interest at
8%. The note is due February 28, 2006. The note may
convert into Series C Convertible Preferred Stock at $1.12
per share. A contingent beneficial conversion feature has
been calculated for a value of $303,572 and will be recognized
upon the of the closing of Series C Preferred Stock. 500,000
$ 780,697
Long term liabilities:
Unsecured convertible note payable with interest
at 18% (effective interest rate of 29.83%), maturing
on September 16, 2008. Three years of prepaid
interest has been paid through the issuance of
363,000 shares of restricted common stock valued
at $515,460. The holder of the note may convert
any portion of the outstanding balance at the lower
of 50% of the fair value of the Company's common
stock or $0.40 per share. A beneficial conversion
feature of $363,000 was recorded. As of December
31, 2005, the unamortized debt discount was $327,708. $ 35,292
Unsecured convertible note payable with interest
at 18% (effective interest rate of 26.17%), maturing
on May 3, 2008. Three years of prepaid interest
has been paid through the issuance of 127,500
shares of restricted common stock valued at $68,850.
The holder of the note may convert any portion of
the outstanding balance at the lower of 50% of
the fair value of the Company's common stock
or $0.40 per share. A beneficial conversion
feature of $127,500 was recorded. As of
December 31, 2005, the unamortized debt discount
was $99,166. 28,334
Unsecured convertible notes payable with interest
at 18% (effective interest rate of 26.15%), and
maturity dates of March 7, 2008, April 7, 2008, and
August 14, 2008. Three years of prepaid interest
has been paid through the issuance of 600,000
restricted shares of common stock valued at
$324,000. The holder of the note may convert
any portion of the outstanding balance at the
lower of 50% of the fair value of the Company's
common stock or $0.40 per share. A beneficial
conversion feature of $320,000 was recorded.
As of December 31, 2005, the unamortized debt
discount was $264,931. 335,069
Q-9
Unsecured convertible notes payable with interest
at 18% (effective interest rate of 54.24%), and
maturity dates of May 2, 2008 and September 15,
2008. Three years of prepaid interest has been
paid through the issuance of 150,000 shares of
restricted common stock valued at $125,000. The
holder of the note may convert any portion of the
outstanding balance at the lower of 50% of the fair
value of the Company's common stock or $0.40
per share. A beneficial conversion feature of
$150,000 was recorded. As of December 31,
2005, the remaining debt discount was $122,917. 27,083
Unsecured convertible notes payable with interest
at 18% (effective interest rate of 39.72%), and
maturity dates of June 15, 2008 and September
15, 2008. Three years of prepaid interest has been
paid through the issuance of 1,280,000 shares of
restricted common stock valued at $883,600. The
holder of the note may convert any portion of the
outstanding balance at 50% of the fair value of the
Company's common. As of December 31, 2005,
the unaccreted balance was $1,097,499. These notes
have conversion features that are considered embedded
derivatives and therefore, are subject to derivative
accounting. (See Note 8) 182,501
Unsecured convertible notes payable with interest
at 5% (effective interest rate of 31.86%), and
maturity dates of September 30, 2008. Three years
of prepaid interest has been paid through the issuance
of 575,000 shares of restricted common stock valued
at $655,500. The holder of the note may convert any
portion of the outstanding balance at the lower of 50%
of the fair value of the Company's common or $0.60 per
share. As of December 31, 2005, the unaccreted balance
was $527,083. These notes have conversion features that
are considered embedded derivatives and therefore, are
subject to derivative accounting. (See Note 8) 47,917
$ 656,196
(4) BANK LINE OF CREDIT
As of December 31, 2005, the Company had $174,475 outstanding under a line of
credit with Zions First National Bank. The line of credit bears interest at
prime plus .25% (7.25%), matures on March 11, 2006, is limited to $175,000 plus
fees, and is secured by certificates of deposit which the Company holds as
restricted cash of $181,564.
(5) RELATED PARTY LINE OF CREDIT AND NOTE
As of December 31, 2005, the Company owed to ADP Management, an entity owned and
controlled by two of the Company's officers and directors $863, under a line of
credit agreement. Outstanding amounts on the line of credit accrue interest at
Q-10
5.0% and are due in July 2006. During the three months ended December 31, 2005,
the net decrease in the related party line of credit was $16,752. The net
decrease consisted of net cash repayments during the quarter of $192,314 and net
increases of $175,562 related to a monthly management fee owed to ADP Management
and expenses incurred by ADP Management that are reimbursable by the Company. If
the Company is unable to pay the management fee and the reimbursable expenses in
cash, the related party line of credit is increased for the amount owed to ADP
Management.
The Company entered into a loan with an entity controlled by an employee of the
Company. The loan bears interest at 17%. An origination fee of $10,000 was added
to the principal balance owed under the note. Principal and interest were due
November 13, 2005. The first four months are interest only and the last three
months are interest and principal. This loan is secured by the stock and assets
of Volu-Sol Reagents Corporation, a wholly-owned subsidiary of RemoteMDx, Inc.
As of December 31, 2005, the balance net of the debt discount was $251,250. The
note has been extended for cash payments of $10,000 per month.
(6) CONVERTIBLE DEBENTURES
During the year ended September 30, 2004, the Company sold $1,450,000 of Series
B Convertible Debentures and $350,000 of Series C Convertible Debentures. The
Debentures are convertible automatically into shares of the Company's common
stock upon the closing of a qualified equity or debt offering with gross
proceeds of at least $5,000,000. Under the terms, the conversion price will
equal 80% of the fair value prior to closing the offering. The Debentures bear
interest at an annual rate of 10%, not including any original issue discount,
with interest during the first six months of $47,954 added to the principal
amount. Thereafter, interest payments will be made monthly in cash or, at the
sole option of the Company, in shares of Common Stock at a price of $0.54 per
share. The Debentures mature and are payable two years from each Closing,
subject to the conversion as indicated above. As of December 31, 2005, the
convertible debentures net of debt discount was $1,290,452.
(7) PREFERRED STOCK
Series A 10 % Convertible Non-Voting Preferred Stock
During the three months ended December 31, 2005, a total of 4,221 shares of
Series A Preferred Stock were converted into 1,565,025 shares of common stock.
As of December 31, 2005, there were 21,786 shares of Series A Preferred Stock
outstanding, which represents 8,060,650 common stock equivalents at a conversion
rate of 370 for 1.
The holders of the Series A Preferred Stock are entitled to dividends at the
rate of 10 percent per year on the stated value of the Series A Preferred Stock
(or $200 per share), payable in cash or in additional shares of Series A
Preferred Stock at the discretion of the board of directors. Dividends are fully
cumulative and accrue from the date of original issuance. During the three
months ended December 31, 2005 and 2004, the Company recorded $124,461 and
$128,649, respectively, in dividends on Series A Preferred Stock.
The Company may, at its option, redeem up to two-thirds of the total number of
shares of Series A Preferred Stock at a redemption price of 133 percent of the
stated value of Series A Preferred Stock; however, the Company may designate a
different and lower redemption price for all shares of Series A Preferred Stock
called for redemption by the Company. Through December 31, 2005, the Company had
not exercised its option to redeem shares of Series A Preferred Stock.
Series B Convertible Preferred Stock
During the three months ended December 31, 2005, a total of 1,096,825 shares of
Series B Preferred Stock were converted into 5,652,381 shares of common stock.
As of December 31, 2005, there were 272,332 shares of Series B Preferred Stock
outstanding convertible into approximately 2,043,000 common shares.
SecureAlert, Inc. Preferred Shares
During the year ended September 30, 2005, and pursuant to Board of Director
approval, the Company amended the articles of incorporation of its wholly owned
subsidiary, SecureAlert, Inc., to establish 3,500,000 shares of preferred stock
designated as Series A Convertible Redeemable Non-Voting Preferred Stock. The
holders of shares of Series A Preferred Stock shall be entitled to receive
quarterly dividends out of any of SecureAlert's assets legally available
therefore, prior and in preference to any declaration or payment of any dividend
on the Common Stock of the SecureAlert, at the rate of $1.50 per day times the
number of SecureAlert's parolee contracts calculated in days during the quarter.
For example, if there were an average of 10,000 parolee contracts outstanding
during the quarter, the total dividend would be $1,350,000 ($1.50 X 90 days X
Q-11
10,000 contracts) or $.385/Series A Preferred Stock. In no case will a dividend
be paid if the gross revenue per contract per day to SecureAlert averages less
than $4.50. Dividends will be paid in cash to the holders of record of shares of
Series A Preferred Stock as they appear on the books and records of SecureAlert
on such record dates not less than ten (10) days nor more than sixty (60) days
preceding the payment dates thereof, as may be fixed by the Board of Directors
of SecureAlert. As a group, all Series A Preferred Stock may be converted at the
holder's option at any time into an aggregate of 20% ownership of the common
shares of the SecureAlert, Inc. During the quarter ended December 31, 2005, the
Company sold 600,000 of these shares for $600,000. As of December 31, 2005,
there were 3,590,000 shares of SecureAlert Series A Preferred Stock.
The 600,000 shares of SecureAlert Series A Preferred Stock issued during the
quarter have an additional feature where the Company will buy back the
SecureAlert Series A Preferred Shares and pay the investor 15% interest should
the Company not have contracts for a total of 7,000 parolee units by March 31,
2006. There is doubt that the Company will secure 7,000 parolee contracts by
March 31, 2006; therefore, in accordance with SFAS No. 150, Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity, the redemption value of the redeemable shares has been recorded as a
liability. The Company has committed to collateralize these instruments with
600,000 free trading shares of its common stock. In addition, each holder
received an option to purchase 1 share of common stock with an exercise price of
$1.00 per share for each share of SecureAlert Series A Preferred Shares
received. The Black-Scholes model was used to determine the value for the
600,000 options issued. The value of the options was $443,515. The detachable
warrants were valued at $443,515 and the debt discount was prorated. As of
December 31, 2005, the unamortized debt discount was $241,590.
(8) DERIVATIVES
The Company does not hold or issue derivative instruments for trading purposes.
However, the Company has convertible notes payable that contain embedded
derivatives that require separate valuation from the convertible notes. The
Company recognizes these derivatives as liabilities in its balance sheet and
measures them at their estimated fair value, and recognizes changes in their
estimated fair value in earnings (losses) in the period of change. The Company
has estimated the fair value of these embedded derivatives using the
Black-Scholes model based on the historical volatility of its common stock over
the past three years. The fair value of derivative instruments are re-measured
each quarter.
During the three months ended December 31, 2005 and the year ended September 30,
2005, the Company issued convertible notes payable containing embedded
derivatives. The Company received $1,855,000 from these convertible notes and
issued 1,855,000 shares of common stock valued at $1,539,100 for three years of
prepaid interest. The carrying value of these convertible notes payable as of
December 31, 2005 was $230,418. The carrying value will be increased each
quarter over the three year period as the accretion related to the embedded
derivative is recorded until the carrying value equals the face value of
$1,855,000. As of December 31, 2005, the derivative instruments had a total fair
value of $2,926,527.
(9) COMMON STOCK
During the three months ended December 31, 2005, the Company issued 9,287,246
shares of common stock as follows:
o 325,000 shares were issued for services performed for a value of
$327,000.
o 694,840 shares were issued in connection with debt and interest on
notes payable for a value of $784,416.
o 1,050,000 shares were issued for $700,000 in cash, net commission of
$35,000
o 7,217,406 shares were issued for conversion of Series A and B Preferred
Stock.
Common Stock Subject to Redemption
The Company has 32,000 common shares outstanding that are redeemable at the
option of the holder with a redeemable value of $96,000. The Company has not yet
been released from the $96,000 obligation. In accordance with SFAS No. 150,
Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity, the redemption value of the redeemable shares has been
recorded as a liability.
Q-12
Common Stock Options and Warrants
As of December 31, 2005, 9,341,649 of the 13,266,649 outstanding options and
warrants were vested with a weighted average exercise price of $0.60 per share.
For the three months ended December 31, 2005, 657,500 options were issued with
an exercise price of $1.00 per share. These options were issued in connection
with debt and SecureAlert Series A Preferred stock.
(10) SEGMENT INFORMATION
The Company is organized into two business segments based primarily on the
nature of the Company's products. The Reagents segment is engaged in the
business of manufacturing and marketing medical diagnostic stains, solutions and
related equipment to hospitals and medical testing labs. The SecureAlert segment
is engaged in the business of developing, distributing and marketing mobile
emergency and personal security systems to distributors and consumers. Other
(unallocated) loss consists of research and development, selling, general and
administrative expenses related to the Company's corporate activities, including
remote health monitoring and market and business development activities.
The following table reflects certain financial information relating to each
reportable segment for each of the three-month periods ended December 31, 2005
and 2004:
Three Months Ended
December 31,
2005 2004
Sales to external customers:
SecureAlert $ 77,060 $ 68,945
Reagents 142,433 138,574
$ 219,493 $ 207,519
Net (loss) income from operations :
SecureAlert $ (1,349,620) $ (552,671)
Reagents 23,830 14,314
Other (unallocated) (2,119,963) (777,469)
$ (3,445,753) $ (1,315,826)
Identifiable assets:
SecureAlert 879,205
Reagents 306,310
Other (unallocated) 802,863
$ 1,988,378
(11) SUBSEQUENT EVENTS
Subsequent to December 31, 2005, the Company has entered into the following
agreements:
o $400,000 of the Convertible Promissory Bridge Notes have been redeemed
by the Company pursuant to the terms of the Notes for $418,668 in cash.
o The Board of Directors have approved the issuance of Series C Preferred
Stock. Series C Preferred Stock has the following features: cost of
$1.12 per share, an annual dividend of 8%, voting rights and one share
of Series C Preferred Stock converts into two shares of common stock.
o The Company has received $500,000 from two entities from the issuance
of debt convertible into Series C Preferred Stock.
Q-13
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