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Basis of Presentation, Significant Accounting Policies
|9 Months Ended|
Jun. 30, 2011
|Notes to Financial Statements|
|Basis of Presentation, Significant Accounting Policies||
Note 2 Basis of Presentation and Summary of Significant Accounting Policies
The accompanying unaudited condensed interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation.
The unaudited interim financial statements should be read in conjunction with the Companys Annual Report on Form 10-K, which contains the audited financial statements and notes thereto, together with the Managements Discussion and Analysis, for the years ended September 30, 2010 and 2009. The interim results for the period ended June 30, 2011 are not necessarily indicative of results for the full fiscal year.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States (GAAP) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include collectability of accounts receivable, accounts payable, sales returns, and recoverability of long-term assets.
Derivative instruments are recognized as either assets or liabilities and are measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation.
Fair Value Measurements
For certain of the Companys financial instruments, including cash and cash equivalents, accounts payable, accrued expenses and short-term debt, the carrying amounts approximate fair value due to their short maturities. In addition, the Company has short-term debt with investors. The carrying amounts of the short-term liabilities approximate their fair value based on current rates for instruments with similar characteristics.
Revenues from product sales are recorded when all four of the following criteria are met: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the Company's price to the buyer is fixed or determinable; and (iv) collectability is reasonably assured. The Company's policy is to report its sales levels on a net revenue basis, with net revenues being computed by deducting from gross revenues the amount of actual sales returns and the amount of reserves established for anticipated sales returns.
The Company's policy for shipping and handling costs billed to customers is to include them in revenue in accordance with ASC Topic 605, Revenue Recognition, which requires that all shipping and handling billed to customers should be recorded as revenue. Accordingly, the Company records its shipping and handling amounts within net sales and operating expenses.
The Company earned no revenues for the three or nine months ended June 30, 2011 and earned revenues of $1,620,000 for the nine months ended June 30, 2010. For the nine months ended June 30, 2011, the Company recognized $470,132 of other income in connection with the cancellation of a sales contract.
Research and Development
The cost of research and development is expensed as incurred. Total research and development costs were $296,009 and $74,662 for the three months ended June 30, 2011 and 2010, respectively and $470,215 and $192,928 for the nine months ended June 30, 2011 and 2010, respectively.
The costs of all employee stock options, as well as other equity-based compensation arrangements, are reflected in the financial statements based on the estimated fair value of the awards on the grant date. That cost is recognized over the period during which an employee is required to provide service in exchange for the awardthe requisite service period (usually the vesting period). Stock compensation for stock granted to non-employees is determined as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured.
Earnings Per Share
Earnings per share is calculated in accordance with the ASC Topic
260, Earnings Per Share. Basic net income or loss per share is computed by dividing the net income or
loss available to common stock holders by the weighted average number of common shares outstanding. Diluted net loss per share
is based on the assumption that all dilutive convertible shares and stock options and warrants were converted or exercised. Dilution
is computed by applying the treasury stock method. Under this method, options and warrants that are deemed in the money
are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby
were used to purchase common stock at the average market price during the period. Also, under this method, convertible notes are
treated as if they were converted at the beginning of the period. The following is a reconciliation of the income (numerator)
and number of shares (denominator) used in the basic and diluted earnings per share computations for the nine months ended June
30, 2010. There was no difference between the basic and diluted weighted average shares or earnings for the three or nine months
ended June 30, 2011.
Recently Issued Accounting Pronouncements
In October 2009, the FASB issued ASU No. 2009-14, Software (Topic 985) Certain Revenue Arrangements That Include Software Element, a Consensus of the FASB Emerging Issues Task Force, to address concerns relating to the accounting for revenue arrangements that contain tangible products and software. It requires a vendor to use vendor-specific objective evidence of selling price to separate deliverables in a multiple-element arrangement. The update will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on January 1, 2011. We are currently evaluating the impact, if any, of adopting the update.
In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value Measurements (ASU 2010-06). ASU 2010-06 amends ASC 820, Fair Value Measurements ("ASC 820") to require a number of additional disclosures regarding fair value measurements. The amended guidance requires entities to disclose the amounts of significant transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for these transfers, the reasons for any transfers in or out of Level 3, and information in the reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. The ASU also clarifies the requirement for entities to disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. The amended guidance was effective for financial periods beginning after December 15, 2009, except the requirement to disclose Level 3 transactions on a gross basis, which becomes effective for financial periods beginning after December 15, 2010. ASU 2010-06 did not have a significant effect on the Companys consolidated financial position or results of operations.
In July 2010, the FASB issued an accounting update to provide guidance to enhance disclosures related to the credit quality of a company's financing receivables portfolio and the associated allowance for credit losses. Pursuant to this accounting update, a company is required to provide a greater level of disaggregated information about its allowance for credit loss with the objective of facilitating a users evaluation of the nature of credit risk inherent in the company's portfolio of financing receivables, how that risk is analyzed and assessed in arriving at the allowance for credit losses, and the changes and reasons for those changes in the allowance for credit losses. The revised disclosures as of the end of the reporting period are effective for the Company beginning in the second quarter of fiscal 2011, and the revised discourses related to activities during the reporting period are effective for the Company beginning in the third quarter of fiscal 2011. The Company is currently evaluating the impact of this accounting update on its financial disclosures.
The entire disclosure for the basis of presentation, or accounting, and significant accounting policies.