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UV FLU TECHNOLOGIES INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this quarterly report. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward-looking statements are based upon estimates, forecasts, and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by us, or on our behalf. We disclaim any obligation to update forward-looking statements. Background UV Flu Technologies, Inc. ("we", "us", "our," or the "Company") was organized under the laws of the State of Nevada on April 4, 2006 under the name "Northwest Chariots, Inc." We were engaged in the business of renting and selling electrically powered human transporters, like electric bicycles, chariots, and quads. Following our fiscal year ended September 30, 2009, we decided to change our product mix to air purification products and to focus on the research, development, manufacturing, and sales of air purification systems and products. In furtherance of our business objectives, on November 12, 2009, we effected a 32-for-1 forward stock split of all our issued and outstanding shares of common stock, and we merged with our wholly-owned subsidiary, UV Flu Technologies, Inc., for the purposes of effecting a name change to "UV Flu Technologies, Inc." Effective November 15, 2009, we acquired AmAirapure Inc.'s air purification technology, product, inventory, and certain equipment pursuant to an Asset Purchase Agreement with AmAirapure, Inc. We issued 15,000,000 shares of our common stock to shareholders of AmAirapure in connection with the asset acquisition. Additionally, on November 25, 2009, we entered into a Distribution Agreement with Puravair Distributors LLC ("Puravair") where we appointed Puravair as our exclusive master distributor for our Viratech UV-400 product and our other products for the professional, medical, and commercial markets in the U.S. and Canada. On September 30, 2010, we terminated our Distribution Agreement with Puravair and began adding new distributors, which totaled five as of year end. The latest production runs of our Viratech UV-400 product incorporate our patented UV bacteria killing technology, which has been cleared by the FDA for use as a medical device. In June 2010, we expanded our market reach by introducing the latest generation of our Viratech UV-400 product into the residential and hospitality markets. On October 28, 2010, we entered into a binding letter of intent with The Red Oak Trust ("Red Oak") (the "LOI") in connection with our proposed acquisition of one hundred percent (100%) of the issued and outstanding units of RxAir Industries, LLC, a Nevada limited liability company ("RxAir"), which is wholly owned by Red Oak (the "Acquisition"). RxAir began operations 15 years ago and has built a reputation for delivering high-quality air purification products made in the United States. The Acquisition included the Company acquiring RxAir's patents, trademarks, inventory, production equipment, one 510k covering an FDA clearance for the Rx-3000 as a Class II Medical Device, as well as a customer list covering approximately 1,000 locations, including over 400 hospitals. The Company plans to use the Acquisition as a springboard into the medical and commercial market and believes the Acquisition will lead to increased sales. On January 31, 2011, we entered into and completed our Acquisition of RxAir pursuant to the Acquisition Agreement, dated January 31, 2011, by and the Company, and Red Oak, as the sole shareholder of RxAir. At the closing of the Acquisition, RxAir became a wholly-owned subsidiary of the Company. 19 The Company has spent the last two years building the brand, and focusing marketing efforts towards areas that will not only generate sales, but educate consumers about the indoor air quality space, and why it is so important, and why our product is so unique in its ability to treat all forms of indoor air pollution. Sales have begun to show the results from these initiatives. In order to meet our business objectives, we will need to raise additional funds through equity or convertible debt financing. There can be no assurance that we will be successful in raising additional funds and, if unsuccessful, our plans for expanding operations and business activities may have to be curtailed. Any attempt to raise funds, through debt or equity financing, would likely result in dilution to existing shareholders. Critical Accounting Policies The preparation of consolidated financial statements in conformity with United States generally accepted accounting principles requires management of our company to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. We believe certain critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. A description of our critical accounting policies is set forth in our Annual Report on Form 10-K for the year ended September 30, 2013. As of, and for the three months ended December 31, 2013, there have been no material changes or updates to our critical accounting policies. Results of Operations The following discussion of the financial condition, results of operations, cash flows and changes in our financial position should be read in conjunction with our audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2013 filed on January 13, 2014. Results of Operations for the three months ended December 31, 2013 as compared to the three months ended December 31, 2012 During the three months ended December 31, 2013, we received gross revenue of $18,924 as compared to $54,385 for the three months ended December 31, 2012. For the three months ended December 31, 2013 and December 31, 2012, we incurred a loss of $316,347 and $298,448 respectively. The decrease in revenues is due to the delay in a major national sales launch. Sales Revenue During the three months ended December 31, 2013, we received gross revenue of $18,924 as compared to $54,385 for the three months ended December 31, 2013. The decrease is primarily related to the delay in a national introduction of the UV-400 through a major marketing company, which had been anticipated to begin in the first quarter. The Company had signed a limited exclusivity agreement which was in effect during the test period, which ends in February. The results don't fully reflect the strides the Company has made in building a platform for significant growth. The Company has decided to split its marketing efforts into 4 major areas: · Residential · Medical 20 · Commercial · Sleep Market Residentially, the Company is utilizing mediums that can efficiently sell product, while also educating the consumer. Internet marketers, like Groupon, video, infomercials, and direct mail and email campaigns are all potential mediums. Our target market is health-conscious consumers, new mothers, any individuals undergoing chemotherapy or transplants, and individuals with asthma or allergies. The Medical space, we are pursuing through our RX Air platform, which has an installed base of almost 600 hospitals worldwide. We plan on attacking this space through added distributors, both domestically, as well as Internationally, while also contacting all of our current customers. We are also planning on adding national distributors that sell into this space. The Commercial space includes offices, hair salons, restaurants, pet and veterinary applications, correctional facilities, health facilities, government buildings and day care centers. The Sleep Market, which has the potential to be several times larger than the current air purification space, should be augmented by an endorsement agreement with a nationally known Sleep Doctor, whose frequent television appearances should help consumer and brand awareness. Clinical studies have linked Indoor Air Pollution as being the biggest environmental factor in causing sleep related issues, and sleep disorders are now known to dramatically increase the risks of stroke, cancer, diabetes, and a host of other health ailments. We feel furniture stores, through their bedding and infant nursery departments, hotels, sleep centers, and consumers with sleep disorders are all potential customers. In the first half of 2013, the Company began working with a national sales and marketing company, that sells a line of infrared heaters and air purifiers. The Company spends almost 40% of their gross revenues on marketing, which UV Flu felt was necessary in building the brand. Test marketing is expected to be completed in February of 2014, at which time the Companies will discuss the potential of a national launch. We have designed a lower cost unit for the residential marketplace, that we feel will be the best product in the market, and will incorporate our technology with an advanced filter medium. We feel next year the demand for that product internationally could be significant. Net Income (Loss) During the three months ended December 31, 2013, our net loss was $316,347 as compared to $298,448 for the three months ended December 31, 2012. The increase in net loss is due to a decrease in sales due to a delay in a major contract. General and Administrative Expenses During the three months ended December 31, 2013, the Company incurred total expenses of $302,754, as compared to $311,253 for the three months ended December 31, 2012. The decrease is primarily due to a lower level of professional fees during the quarter. December 31, 2013 December 31, 2012 Marketing $ 11,454 1,650 Office and administration 186,543 90,991 Professional fees 6,255 184,421 Consulting 98,502 33,825 Depreciation 0 366 Total $ 302,754 311,253 21 Liquidity and Capital Resources As of December 31, 2013, we had cash of $27,581, and working capital of $(38,708). During the period ended December 31, 2013, we funded our operations from receipts of sales revenues, proceeds from loans payable and sale of shares. In order to survive, we are dependent on increasing our sales volume. Additionally, we plan to continue further financings and believe that this will provide sufficient working capital to fund our operations for at least the next 12 months. Changes in our operating plans, increased expenses, additional acquisitions, or other events may cause us to seek additional equity or debt financing in the future. For the three months ended December 31, 2013, $126,415 in cash flows was used in operating activities as compared to $77,228 that was used in operating activities for the three months ended December 31, 2012. The increase is primarily due to an increase in our general and administrative expenses for the three months ended December 31, 2013 as compared to the three months ended December 31, 2012 as a result of additional staffing and marketing expenses. For the period ended December 31, 2013, net cash provided by operating activities reflected $22,921 in changes in current assets and inventory, and we used $4,311 in accounts payable and accrued liabilities. For the three month period ended December 31, 2013 cash flows used for investing activities was $0 as compared to $0 cash used for the three month period ended December 31, 2012. For the three months ended December 31, 2013, cash provided by financing activities was $146,139 compared to $90,414 of cash used for the period ended December 31, 2012. $5,000 was provided by notes payables, $9,375 from the exercise of warrants, and $132,850 of proceeds from the sale of common shares were provided for the three months ending December 31, 2013 as compared to $12,414 was from notes payable and $78,000 proceeds from the sale of common shares for the three month period ending December 31, 2012. We anticipate that our cash requirements will be significant in the near term due to contemplated development, purchasing, marketing and sales of our air purification technologies and products. Accordingly, we expect to continue raise capital through share offering and sales to fund current operations. Off-Balance Sheet Arrangements We presently do not have any off-balance sheet arrangements. Capital Expenditures We did not make any capital expenditures in the three months ended December 31, 2013. |