NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
All significant intercompany accounts and transactions have been
eliminated in consolidation.
Liquidity and Going Concern
The financial statements have been prepared on a going concern basis,
and do not reflect any adjustments related to the uncertainty surrounding our recurring losses or accumulated deficit.
The Company currently has limited revenue and is incurring losses.
These factors raise substantial doubt about its ability to continue as a going concern. Management has financed the Company's operations
principally through loans from an affiliate of the Companys CEO, who is also one of the principal shareholders. It
is the Company's intent to continue to obtain funds in this manner unless and until it can raise funds through the sale of equity
securities. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
Since its inception , the Company has obtained its liquidity principally
from approximately $1.8 million principal amount of cash advances from an affiliate of Craig Sizer, the Chairman and CEO and one
of the Company's principal shareholders. The Company has executed promissory notes totaling approximately $1.8 million
as of June 30, 2011, with CLSS Holdings, LLC (CLSS). (See Note 3) .
The ability of the Company to continue as a going concern is dependent
upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources
of financing in addition to those funds provided by Mr. Sizer's affiliate and attain profitable operations. The accompanying financial
statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates and assumptions that affect
reported amounts of assets and liabilities, 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.
For purposes of reporting cash flows, the Company considers all
short-term investments with an original maturity of three months or less to be cash equivalent.
Certain product sales are subject to rights of return. Such
rights include the right to return defective items within 30 days and with certain large accounts a right to return unsold product. For
products sold where the buyer has the right to return the product, the Company recognizes revenue at the time of sale only if (1) the
Companys price to the buyer is substantially fixed or determinable at the date of sale, (2) the buyer has paid the
Company, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product, (3) the
buyers obligation to the Company would not be changed in the event of theft or physical destruction or damage of the product,
(4) the buyer acquiring the product for resale has economic substance apart from that provided by the seller, (5) the
Company does not have significant obligations for future performance to directly bring about resale of the product by the buyer,
and (6) the amount of future returns can be reasonably estimated. The Company recognizes such product revenues when either
it has met all the above criteria, including the ability to reasonably estimate the right of return of unsold items, or when it
can reasonably estimate that the return privilege has expired.
Product Sales Revenue from sales of the
Companys products is recorded when title and risk of loss have passed to the buyer and provided the criteria for revenue
recognition are met. The Company sells its products to individual consumers and resellers upon receipt of a written order. The
Company has a limited return policy for defective items that requires the customer to give the Company notice within 30 days
after receipt of the product; however, such risk is passed to the manufacturer and therefore the Company recognizes revenue at
the time of delivery without providing any reserve. For sales made by certain large accounts with a right to return unsold items,
the Company provides for a reserve for the estimated amount of unsold items.
Concentration of Credit Risk
Financial instruments which subject the Company to concentrations
of credit risk include cash and cash equivalents. The Company maintains its cash in well-known banks selected based upon management's
assessment of the banks financial stability. Balances may periodically exceed the $250,000 federal depository insurance
limit; however, the Company has not experienced any losses on deposits. The Company extends credit based on an evaluation of the
customer's financial condition, without collateral. Exposure to losses on receivables is principally dependent on each customer's
financial condition. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses, as required.
Inventories are stated at the lower of cost (on a first-in, first-out
basis) or market value. The stated cost is comprised of finished goods of non-invasive thermometers. Reserves, if necessary,
are recorded to reduce inventory to market value based on assumptions about consumer demand, current inventory levels and product
life cycles for the various inventory items. These assumptions are evaluated quarterly and are based on the Companys business
plan and from feedback from customers and the product development team; however, as the Company has a fairly limited operating
history, estimates can vary significantly.
Reserves for Warranty
The Company records a reserve at the time product revenue is recorded
based on historical rates. The reserve is reviewed during the year and is adjusted, if appropriate, to reflect new product
offerings or changes in experience. Actual warranty claims are tracked by product line. The warranty reserve was approximately
$1,000 at June 30, 2011 and December 31, 2010.
Fixed assets are stated at cost, less accumulated depreciation.
Depreciation is provided principally on the straight-line method over the estimated useful lives of the assets, which is generally
3 to 10 years. The cost of repairs and maintenance is charged to expense as incurred. Expenditures for property betterments and
renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed
from the accounts and any gain or loss is reflected in other income or expense.
The Company will periodically evaluate whether events and circumstances
have occurred that may warrant revision of the estimated useful lives of fixed assets or whether the remaining balance of fixed
assets should be evaluated for possible impairment. The Company uses an estimate of the related undiscounted cash flows
over the remaining life of the fixed assets in measuring their recoverability.
Advertising costs are expensed as incurred.
Shipping and Handling
Costs incurred by the Company for shipping and handling are included
in costs of revenues.
The Company accounts for income taxes under ASC 740, formerly Financial
Accounting Standards No. 109 "Accounting for Income Taxes". Under ASC 740, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period, which includes the enactment
In June 2006, the Financial Accounting Standards Board issued FASB
Interpretation No. 48 (FIN-48), Accounting for Uncertainty in Income Taxes--An interpretation of FASB Statement No. 109 and codified
into ASC 740. FIN-48 clarifies the accounting for uncertainty in income taxes recognized in an entity's financial statements in
accordance with Statement of Financial Accounting Standards No.109, Accounting for Income Taxes. This Interpretation prescribed
a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken
or expected to be taken in a tax return. In addition, FIN-48 provides guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, disclosure, and transition. The Company adopted the provisions of FIN-48 and they had
no impact on its financial position, results of operations, and cash flows.
Based on its evaluation, the Company has concluded that there are
no significant uncertain tax positions requiring recognition in its financial statements. The Company's evaluation was performed
for the tax years ended December 31, 2010 and 2009 for U.S. Federal Income Tax, for the State of Florida Corporate Income Tax,
the years which remain subject to examination by major tax jurisdictions as of December 31, 2010 and 2009.
Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Research and Development Expense
Costs related to research and development, which primarily consists
of salaries and benefits, stock compensation and consulting, are charged to expense as incurred
We capitalize external costs, such as filing fees and associated
attorney fees, incurred to obtain issued patents and patent license rights. We expense costs associated with maintaining and defending
patents subsequent to their issuance in the period incurred. We amortize capitalized patent costs for internally generated patents
on a straight-line basis over five to ten years, which represents the estimated useful lives of the patents. The estimated
useful life for internally generated patents is based on our assessment of such factors as the length of license agreements, if
any, for such patents and the expected product life of the product. We assess the potential impairment to all capitalized net patent
costs when events or changes in circumstances indicate that the carrying amount of our patents may not be recoverable.
As of June 30, 2011 and December 31, 2010, patents totaled $46,647 and $48,824, respectively, net of accumulated amortization of
$3,127 and $0, respectively.
Basic and Diluted Net Loss Per Share
The Company computes net income (loss) per share in accordance with
ASC Topic 260, Earning per Share, formerly Statement of Accounting Standards SFAS No. 128, "Earnings per Share", which
requires presentation of both basic and diluted earnings per share ("EPS") on the face of the income statement. Basic
EPS is computed by dividing net income (loss) available to common shareholders (numerator) before and after discontinued operations,
by the weighted average number of common shares outstanding (denominator) during the period, including contingently issuable shares
where the contingency has been resolved. Diluted EPS gives effect to all dilutive potential common shares outstanding during the
period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS,
the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of
stock options or warrants. Diluted loss per share excludes all dilutive potential shares as their effect is anti-dilutive. For
the three months ended March 31, 2011 and 2010, outstanding stock options, warrants, and shares issuable upon conversion
of convertible notes were anti-dilutive because of net losses, and, as such, their effect has not been included in the calculation
of diluted net loss per share. Potentially dilutive shares of 18.1 million and 13.7 million, respectively, have been
excluded from the denominator in the computation of diluted EPS for three and six months ended June 30, 2011 and 2010, respectively,
because they are anti-dilutive.
Stock Based Compensation
The Company applies the fair value method of ASC 718, Share Based
Payment, formerly Statement of Financial Accounting Standards ("SFAS") No. l23R "Accounting for Stock Based Compensation",
in accounting for its stock based compensation. This standard states that compensation cost is measured at the grant date based
on the value of the award and is recognized over the service period, which is usually the vesting period, if any. As the Company
does not have sufficient, reliable and readily determinable values relating to its common stock, the Company has used the stock
value pursuant to its most recent private sale of stock by an affiliate of our CEO, for purposes of valuing stock based compensation.
The Company believes that the market price of the Company's stock is not indicative of value as the stock is not widely held and