MEDICAL
ALARM CONCEPTS HOLDING, INC.
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
September
30, 2012
|
|
June
30, 2012
|
|
|
(Unaudited)
|
|
|
ASSETS
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
Cash
|
|
$
|
2,660
|
|
|
$
|
20,577
|
|
Accounts receivable
|
|
|
26,488
|
|
|
|
815
|
|
Inventory
|
|
|
28,967
|
|
|
|
52,042
|
|
Loan receivable
|
|
|
—
|
|
|
|
60,000
|
|
Total current assets
|
|
|
58,115
|
|
|
|
133,434
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
9,652
|
|
|
|
10,964
|
|
Intangible assets,
net
|
|
|
1,236,415
|
|
|
|
1,256,041
|
|
Total non-current
assets
|
|
|
1,246,067
|
|
|
|
1,267,005
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,304,182
|
|
|
$
|
1,400,439
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDRS'
DEFICIT
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
7,154,102
|
|
|
$
|
8,043,577
|
|
Accounts payable
|
|
|
88,497
|
|
|
|
122,972
|
|
Deferred revenue
|
|
|
99,112
|
|
|
|
68,148
|
|
Credit line payable - related party
|
|
|
618,844
|
|
|
|
629,594
|
|
Accured expenses
and other current liabilities
|
|
|
143,359
|
|
|
|
87,572
|
|
Total current liabilities
|
|
|
8,103,914
|
|
|
|
8,951,863
|
|
NON-CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Patent payable
|
|
|
2,500,000
|
|
|
|
2,500,000
|
|
Convertible notes
payable, net of discount
|
|
|
202,347
|
|
|
|
196,323
|
|
Total non-current
liabilities
|
|
|
2,702,347
|
|
|
|
2,696,323
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
10,806,261
|
|
|
|
11,648,186
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
Series A Convertible Preferred Stock:
$0.0001 par value; 100,000 shares authorized; 688 shares issued and outstanding as of September 30, 2012 and June 30, 2012,
respectively
|
|
|
—
|
|
|
|
—
|
|
Series B Convertible Preferred Stock:
$0.0001 par value; 62,500 shares authorized; 9,938 shares issued and outstanding as of September 30, 2012 and June 30, 2012,
respectively
|
|
|
1
|
|
|
|
1
|
|
Common stock: $0.0001 par value; 20,000,000
shares authorized 880,578 shares and 717,103 shares issued and outstanding on September 30, 2012 and June 30, 2012, respectively
|
|
|
88
|
|
|
|
72
|
|
Additional paid-in capital
|
|
|
8,148,542
|
|
|
|
7,407,291
|
|
Accumulated deficit
|
|
|
(17,650,710
|
)
|
|
|
(17,655,111
|
)
|
Total stockholders'
deficit
|
|
|
(9,502,079
|
)
|
|
|
(10,247,747
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$
|
1,304,182
|
|
|
$
|
1,400,439
|
|
See
accompanying notes to the consolidated financial statements.
MEDICAL
ALARM CONCEPTS HOLDING, INC.
|
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
|
(Unaudited)
|
|
|
|
|
|
|
|
For
the three months ended September 30,
|
|
|
2012
|
|
2011
|
Revenue
|
|
$
|
144,652
|
|
|
$
|
38,115
|
|
Cost of revenue
|
|
|
69,520
|
|
|
|
12,858
|
|
Gross profit
|
|
|
75,132
|
|
|
|
25,257
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Selling expense
|
|
|
41,314
|
|
|
|
26,854
|
|
General and administrative
|
|
|
158,678
|
|
|
|
297,311
|
|
Total operating
expenses
|
|
|
199,992
|
|
|
|
324,165
|
|
Loss from operations
|
|
|
(124,860
|
)
|
|
|
(298,908
|
)
|
|
|
|
|
|
|
|
|
|
Other (income) expense
|
|
|
|
|
|
|
|
|
Change in fair value of derivative instrument
|
|
|
(201,308
|
)
|
|
|
4,161,159
|
|
Gain on debt extinguishment
|
|
|
(15,817
|
)
|
|
|
—
|
|
Interest expense
|
|
|
87,864
|
|
|
|
725,406
|
|
Gain on sale of
subscriber accounts
|
|
|
—
|
|
|
|
(128,362
|
)
|
Total other (income) loss
|
|
|
(129,261
|
)
|
|
|
4,758,203
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before income tax
|
|
|
4,401
|
|
|
|
(5,057,111
|
)
|
Income tax provision
|
|
|
—
|
|
|
|
—
|
|
Net
income (loss)
|
|
$
|
4,401
|
|
|
$
|
(5,057,111
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per
common share - basic and diluted
|
|
$
|
0.01
|
|
|
$
|
(10.84
|
)
|
Weighted average number of common
shares - basic and diluted
|
|
|
796,266
|
|
|
|
466,468
|
|
MEDICAL
ALARM CONCEPTS HOLDING, INC.
|
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
|
(Unaudited)
|
|
|
|
|
|
|
|
For
the three months ended September 30,
|
|
|
2012
|
|
2011
|
Net income (loss)
|
|
$
|
4,401
|
|
|
$
|
(5,057,111
|
)
|
Adjustments to reconcile net loss to
net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Change in fair value of derivative instrument
|
|
|
(201,308
|
)
|
|
|
4,161,159
|
|
Gain on extinguishment of debt
|
|
|
(15,817
|
)
|
|
|
—
|
|
Amortization of patent
|
|
|
19,626
|
|
|
|
19,626
|
|
Non-cash interest
|
|
|
32,424
|
|
|
|
649,274
|
|
Amortization of stock compensation expense
|
|
|
28,267
|
|
|
|
—
|
|
Depreciation
|
|
|
1,312
|
|
|
|
1,313
|
|
Change in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(25,673
|
)
|
|
|
(1,642
|
)
|
Inventory
|
|
|
23,075
|
|
|
|
7,969
|
|
Accounts
payable
|
|
|
(34,475
|
)
|
|
|
(2,070
|
)
|
Accrued
expenses
|
|
|
55,787
|
|
|
|
60,385
|
|
Deferred
revenue
|
|
|
30,964
|
|
|
|
(59,836
|
)
|
Net Cash Used in
Operating Activities
|
|
|
(81,417
|
)
|
|
|
(220,933
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Cash received from loan receivable
|
|
|
60,000
|
|
|
|
—
|
|
Proceeds from convertible notes
|
|
|
—
|
|
|
|
222,208
|
|
Proceeds from issuance of common stock,
net of costs
|
|
|
14,250
|
|
|
|
—
|
|
Repayment of credit
line - related party
|
|
|
(10,750
|
)
|
|
|
—
|
|
Net Cash Provided
By Financing Activities
|
|
|
63,500
|
|
|
|
222,208
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
|
|
|
(17,917
|
)
|
|
|
1,275
|
|
|
|
|
|
|
|
|
|
|
CASH AT BEGINNING OF PERIOD
|
|
|
20,577
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
CASH AT END OF PERIOD
|
|
$
|
2,660
|
|
|
$
|
1,297
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for
interest expense
|
|
$
|
37,500
|
|
|
$
|
86,000
|
|
|
|
|
|
|
|
|
|
|
Cash paid for
income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Conversion of
convertible notes to common stock
|
|
$
|
26,400
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
classified to additional paid-in capital upon conversion of related convertible notes
|
|
$
|
688,167
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to the consolidated financial statements.
MEDICAL ALARM CONCEPTS HOLDING, INC.
|
NOTES TO FINANCIAL STATEMENTS
|
(Unaudited)
|
On
June 4, 2008, Medical Alarm Concepts Holding, Inc. (the “Company”) was incorporated under the laws of the State of
Nevada. The Company was formed for the sole purpose of acquiring all of the membership units of Medical Alarm Concepts LLC, a
Pennsylvania limited liability company (“Medical LLC”).
On
June 24, 2008, the Company merged with Medical LLC. The members of Medical LLC received 30,000,000 shares of the Company’s
common stock, or 100% of the outstanding shares in the merger. As of the date of the merger, Medical LLC was inactive.
The
Company utilizes new technology in the medical alarm industry to provide 24-hour personal response monitoring services and related
products to subscribers with medical or age-related conditions.
|
2.
|
SUMMARY
OF ACCOUNTING POLICIES
|
Basis
of Presentation and Consolidation
The
Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States (“GAAP”).
The
consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All significant inter-company
transactions and balances among the Company and its subsidiary are eliminated upon consolidation.
These
interim consolidated financial statements are unaudited. In the opinion of management, all adjustments (consisting solely of normal
recurring adjustments) and disclosures necessary for a fair presentation of these interim consolidated financial statements have
been included. The results reported in the consolidated financial statements for any interim periods are not necessarily indicative
of the results that may be reported for the entire year or any other periods. (a) The consolidated balance sheet as of June 30,
2012, which was derived from audited financial statements, and (b) the unaudited interim consolidated financial statements have
been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures
normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United
States have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures
made are adequate to make the information not misleading. These unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report
on Form 10-K for the year ended June 30, 2012.
Certain
amounts included in prior period financial statements have been reclassified to conform with current period financial statements
presentation.
Reverse
Split
On
February 14, 2014, the company filed a Certificate of Change with the State of Nevada to effect a 1-for-800 reverse stock split
on the issued and outstanding preferred and common stock. All relevant information relating to numbers of shares and warrants
and per share information have been retrospectively adjusted to reflect the reverse stock split for all periods presented.
Use
of Estimates
The
preparation of the financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting
periods. Actual results could differ from those estimates. These estimates and assumptions include the collectability of accounts
receivable and deferred taxes and related valuation allowances. Certain of our estimates, including evaluating the collectability
of accounts receivable, could be affected by external conditions, including those unique to our industry, and general economic
conditions. It is possible that these external factors could have an effect on our estimates that could cause actual results to
differ from our estimates. We re-evaluate all of our accounting estimates at least quarterly based on these conditions and record
adjustments when necessary.
MEDICAL ALARM CONCEPTS HOLDING, INC.
|
NOTES TO FINANCIAL STATEMENTS
|
(Unaudited)
|
Inventory
The
Company values inventory, consisting of purchased products, at the lower of cost or market. Cost is determined on the first-in
and first-out (“FIFO”) method. The Company regularly reviews its inventories on hand and, when necessary, records
a provision for excess or obsolete inventories based primarily on current selling price and spot market prices. The Company determined
that there was no inventory obsolescence as of September 30, 2012.
Impairment
of long-lived assets
The
Company follows section 360-10-05-4 of the FASB Accounting Standards Codification for its long-lived assets. The Company’s
reviews it long-lived assets, which include property and equipment, and patent, for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
The
Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated
with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective
carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair
value is generally determined using the asset’s expected future undiscounted cash flows or market value, if readily determinable.
If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than
originally estimated, the net book values of the long-lived assets are depreciated or amortized over the newly determined remaining
estimated useful lives. The Company determined that there were no impairment of long-lived assets as of September 30, 2012.
Derivative
warrant liability
The
Company evaluates its convertible debt, options, warrants or other contracts to determine if those contracts or embedded components
of those contracts qualify as derivatives to be separately accounted for in accordance with paragraph 810-10-05-4 of the FASB
Accounting Standards Codification and paragraph 815-40-25 of the FASB Accounting Standards Codification. The result of this accounting
treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as a liability.
In the event that the fair value is recorded as a liability, the change in fair value is recorded in the Statement of Operations
as other income or expense. Upon conversion, exercise or cancellation of a derivative instrument, the instrument is marked to
fair value at the conversion date and then the related fair value is reclassified to equity.
In
circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also
other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative
instruments are accounted for as a single, compound derivative instrument.
The
classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is
re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject
to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative
instrument liabilities will be classified in the balance sheet as current or non-current based on whether or not net-cash settlement
of the derivative instrument is expected within 12 months of the balance sheet date.
On
January 1, 2009, the Company adopted Section 815-40-15 of the FASB Accounting Standards Codification (“Section 815-40-15”)
to determine whether an instrument (or an embedded feature) is indexed to the Company’s own stock. Section 815-40-15 provides
that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature)
is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions. The adoption
of Section 815-40-15 has affected the accounting for certain freestanding warrants that contain exercise price adjustment features.
Fair
Value of Financial Instruments
The
Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its
financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph
820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework
for measuring fair value pursuant to GAAP and expands disclosures about fair value measurements. To increase consistency and
comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy
which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value
hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and
the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37
are described below:
Level 1
|
Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
|
Level 2
|
Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
|
Level 3
|
Pricing inputs that are generally observable inputs and not corroborated by market data.
|
The
carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, inventory, accounts
payable, deferred revenues and accrued liabilities, approximate their fair values because of the short maturity of these instruments.
The Company’s convertible notes payable and patent payable approximate the fair value of such instruments based upon management’s
best estimate of interest rates that would be available to the Company for similar financial arrangements at September 30, 2012.
The
derivative liability which consists of embedded conversion feature and warrants issued in connection with our convertible debt,
classified as a level 3 liability, are the only financial liability measured at fair value on a recurring basis.
Income
Taxes
The
Company accounts for income taxes under the provisions of FASB ASC Topic 740, “Income Tax,” which requires recognition
of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated
financial statements or tax returns. Deferred tax assets and liabilities are recognized for the future tax consequence attributable
to the difference between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred
tax assets and liabilities are measured using the enacted tax rate 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 that includes the enactment date. The Company establishes a valuation when it
is more likely than not that the assets will not be recovered.
ASC
Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements
and prescribes 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. ASC Topic 740.10.40 provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions
for any of the reporting periods presented.
Revenue
Recognition
The
Company’s revenues are derived principally from utilizing new technology in the medical alarm industry to provide 24-hour
personal response monitoring services and related products to subscribers with medical or age-related conditions. The Company
applies paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company will recognize
revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when it
has persuasive evidence of an arrangement that the services have been rendered to the customer, the sales price is fixed or determinable,
and collectability is reasonably assured.
All
revenues from subscription arrangements are recognized ratably over the term of such arrangements. The excess of amounts received
over the income recognized is recorded as deferred revenue on the consolidated balance sheet.
Shipping
and Handling Costs
The
Company accounts for shipping and handling fees in accordance with paragraph 605-45-45-19 of the FASB Accounting Standards Codification.
While amounts charged to customers for shipping products are included in revenues, the related costs are classified in cost of
goods sold as incurred.
Stock-Based
Compensation
We
recognize compensation expense for stock-based compensation in accordance with ASC Topic 718. For employee stock-based
awards, we calculate the fair value of the award on the date of grant using the Black-Scholes method for stock options and
the quoted price of our common stock for unrestricted shares; the expense is recognized over the service period for awards
expected to vest. For non-employee stock-based awards, we calculate the fair value of the award on the date of grant in the
same manner as employee awards. However, the awards are revalued at the end of each reporting period and the pro rata
compensation expense is adjusted accordingly until such time the nonemployee award is fully vested, at which time the total
compensation recognized to date equals the fair value of the stock-based award as calculated on the measurement date, which
is the date at which the award recipient’s performance is complete. The estimation of stock-based awards that will
ultimately vest requires judgment, and to the extent actual results or updated estimates differ from original estimates, such
amounts are recorded as a cumulative adjustment in the period estimates are revised. We consider many factors when estimating
expected forfeitures, including types of awards, employee class, and historical experience.
MEDICAL ALARM CONCEPTS HOLDING, INC.
|
NOTES TO FINANCIAL STATEMENTS
|
(Unaudited)
|
Net
Loss per Common Share
Net
loss per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net loss
per common share is computed by taking net loss divided by the weighted average number of common shares outstanding for the period.
Diluted net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock and
potentially outstanding shares of common stock during the period to reflect the potential dilution that could occur from common
shares issuable through stock options, warrants, and convertible debt. These potential shares of common stock were not included
as they were anti-dilutive.
These
consolidated financial statements are presented on the basis that the Company will continue as a going concern. The going concern
concept contemplates the realization of assets and satisfaction of liabilities in the normal course of business
As
reflected in the accompanying consolidated financial statements, as of September 30, 2012, the Company has working capital deficit
of $8,045,799; did not generate cash from its operations; had stockholders’ deficit of $9,502,079 and had operating loss
for past three years. These circumstances, among others, raise substantial doubt about the Company’s ability to continue
as a going concern.
While
the Company is attempting to generate sufficient revenues, the Company’s cash position may not be enough to support the
Company’s daily operations. Management intends to raise additional funds by way of a public or private offering. Management
believes that the actions presently being taken to further implement its business plan and generate sufficient revenues provide
the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to
increase revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the
Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and
generate sufficient revenues.
The
consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue
as a going concern.
On
January 5, 2012, the Company entered into a financing agreement and security agreement (“Financing Agreement”) with
First Fitness International, Inc. (“First Fitness”). Under the Financing Agreement, the Company agreed to lend to
First Fitness of a loan in total amount of $200,000. The maturity date of the loan is January 3, 2013. The loan bears interest
on each day at the rate of 10% per annum. In the event of default, the rate of interest shall be 20% per annum. On August 16,
2012, the Company and First Fitness entered into amendment agreement to financing and security agreement (“Termination Agreement”),
pursuant to which, the Company and First Fitness agreed to terminate the Financing Agreement on condition that First Fitness pays
the Company repayment of $60,000 on August 21, 2012 and all remaining balance relating to the Financing agreement has been forgiven.
The Company received $60,000 on August 16, 2012 and recorded bad debt expense of $80,000 in the quarter ended March 31, 2012.
On
July 10, 2008, the Company entered into a Purchase Agreement and Patent Assignment Agreement (the “Agreement”) to
be effective July 31, 2008. The Company is obligated to pay the seller $2,500,000 on June 30, 2012. The Agreement specifies interest
of 6% to be payable monthly, commencing on July 31, 2008. The seller will reacquire all patents and applications if payment is
not made on June 30, 2012. On September 24, 2013, this due date was extended to June 30, 2014.
MEDICAL ALARM CONCEPTS HOLDING, INC.
|
NOTES TO FINANCIAL STATEMENTS
|
(Unaudited)
|
The
patent is being amortized over its estimated useful life. During the year ended June 30, 2011, estimated useful life of the patent
was changed from six years to twenty years due to change of accounting estimates. Amortization of patent aggregated $19,626 and
$19,626 for the quarter ended September 30, 2012 and 2011 respectively.
Patent,
stated at cost, less accumulated amortization at September 30, 2012 and June 30, 2012, consisted of the following:
|
|
September 30, 2012
|
|
June 30, 2012
|
Patent
|
|
$
|
2,500,000
|
|
|
$
|
2,500,000
|
|
Less: accumulated amortization
|
|
|
(1,263,585
|
)
|
|
|
(1,243,959
|
)
|
|
|
$
|
1,236,415
|
|
|
$
|
1,256,041
|
|
|
6.
|
CREDIT
LINE – RELATED PARTY
|
On
January 6, 2012, the Company and Biotech Development Group, LLC. (“Biotech”), a shareholder, entered into a credit
line agreement (“Credit Line Agreement”), pursuant to which, Biotech agreed to give the Company a line of credit to
borrow up to $500,000. The principal balance is due on December 31, 2012. This credit line bears interest at 8% per annum and
due quarterly. On May 18, 2012, the credit line was increased to $750,000. On June 11, 2013, the due date of the credit line was
extended to December 31, 2014.
As
of September 30, 2012, the amount of borrowing under the credit line was $618,844.
|
7.
|
CONVERTIBLE
NOTES PAYABLE
|
During
the quarter ended September 30, 2012, convertible notes with total face amount of $26,400 were converted into shares of common
stocks.
The
following table summarizes the convertible promissory notes movement:
Balance at June 30, 2012
|
|
|
347,610
|
|
Convertible notes issued
|
|
|
—
|
|
Convertible notes converted
|
|
|
(26,400
|
)
|
Total
|
|
|
321,210
|
|
Less: debt discount
|
|
|
(118,863
|
)
|
Balance at September 30, 2012
|
|
|
202,347
|
|
During
three months ended September 30, 2012, the Company issued 17,100,000 shares (21,375 shares after reverse split) of common stocks
for $14,250 of cash.
During
the current period, 113,680,000 shares (142,100 shares after reverse split) of common stocks were issued to various investors
resulting from their conversion of $26,400 convertible notes.
On
January 13, 2014, the Company filed an Amendment to its Articles of Incorporation (the "Amendment") with the Nevada
Secretary of State, effecting the increase of its authorized number of shares of Common Stock. This amendment to the Company’s
Articles of Incorporation increased the number of the Company’s authorized shares of common stock, par value $0.0001 per
share, from 1,400,000,000 to 16,000,000,000.
On
February 14, 2014, the Company filed a Certificate of Change (the “Certificate”), pursuant to Nevada Revised Statutes
(the “NRS”) Section 78.209 and the Company’s Reverse Stock Split of its Preferred Series A stock, Preferred
Series B stock, and Common Stock, all at the par value of $0.0001 per share, at a ratio of 1-for-800 (the “Reverse Stock
Split”) took effective. No fractional shares issued, and no cash or other consideration will be paid. Instead, the Company
issued one whole share of the post-Reverse Stock Split Common Stock to any stockholder who otherwise would have received a fractional
share as a result of the Reverse Stock Split. See Note 12 “Subsequent Event.”
As
a result of increasing authorized number of common stocks and Reverse Stock Split, number of Series A Convertible Preferred Stock,
Series B Convertible Preferred Stock and Common Stock are presented by the following table.
MEDICAL ALARM CONCEPTS HOLDING, INC.
|
NOTES TO FINANCIAL STATEMENTS
|
(Unaudited)
|
|
|
Par value
|
|
Authorized No. of shares
|
|
September 20, 2012
|
|
June 30, 2012
|
Series A Convertible Preferred Stock
|
|
|
$0.0001 per share
|
|
|
|
100,000
|
|
|
|
688
|
|
|
|
688
|
|
Series B Convertible Preferred Stock
|
|
|
$0.0001 per share
|
|
|
|
62,500
|
|
|
|
9,938
|
|
|
|
9,938
|
|
Common Stock
|
|
|
$0.0001 per share
|
|
|
|
20,000,000
|
|
|
|
880,578
|
|
|
|
717,103
|
|
On
August 3, 2012, a related party agreed to forgive warrants to purchase 59,606,148 shares (prior to Reverse Stock Split) of common
stock. The exercise of warrants forgiven ranged from $0.0002 to $ $0.0018 per share. Fair market value of warrants forgiven was
classified as derivative liability totaled $178,816 and was recorded as additional paid-in capital.
On
August 3, 2012, an investor agreed to forgive warrants to purchase 1,219,512 shares (prior to Reverse Stock Split) of common stock.
The exercise of warrants forgiven were $0.0002 per share. Fair market value of warrants forgiven was classified as derivative
liability totaled $3,659 and was recorded as additional paid-in capital.
Stock
warrant activities for the three months ended September 30, 2012 is summarized as follows:
|
|
Number of shares
|
|
Weighted average exercise price
|
|
Outstanding at June 30, 2012
|
|
|
|
139,683,763
|
|
|
|
0.0002
|
|
|
Granted
|
|
|
|
—
|
|
|
|
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
|
|
|
Forgiven
|
|
|
|
60,825,660
|
|
|
|
0.0002
|
|
|
Outstanding at September 30, 2012
|
|
|
|
78,858,103
|
|
|
|
0.0002
|
|
|
10.
|
DERIVATIVE
WARRANT LIABILITY AND FAIR VALUE
|
The
Company has evaluated the application of ASC 815 Derivatives and Hedging (formerly SFAS No. 133) and ASC 815-40-25 to the Warrants
to purchase common stock issued with the the Convertible Notes and service agreements. Based on the guidance in ASC 815 and ASC
815-40-25, the Company concluded these instruments were required to be accounted for as derivatives due to the down round protection
feature on the conversion price and the exercise price. The Company records the fair value of these derivatives on its balance
sheet at fair value with changes in the values of these derivatives reflected in the statements of operations as “Gain (loss)
on derivative liabilities.” These derivative instruments are not designated as hedging instruments under ASC 815 and are
disclosed on the balance sheet under Derivative Liabilities.
The
Company accounted for the issuance of the convertible debentures in accordance with ASC 815” Derivatives and Hedging.”
The debentures are convertible into an indeterminate number of shares for which the Company cannot determine if it has sufficient
authorized shares to settle the transaction with. Accordingly, the embedded conversion option is a derivative liability and is
marked to market through earnings at the end of each reporting period.
The
gross proceed from the sale of the debentures are recorded net of a discount of related to the conversion feature of the embedded
conversion option. When the fair value of conversion options is in excess of the debt discount the amount of $181,648 has been
included as a component of interest expense in the statement of comprehensive loss. During the quarter ended September 30, 2011,
the Company recorded $914,452 into other expense, resulting from changes of fair value of derivative instrument; comparably during
the same period of 2010, the Company recorded other income of $346,148.
The
fair value of the Warrants underlying the promissory notes issued at the time of their issuance was calculated pursuant to the
Black-Scholes option pricing model. The fair value was recorded as a reduction to the promissory notes payable and was charged
to operations as interest expense in accordance with effective interest method within the period of the promissory notes. Significant
assumptions used in calculating fair value of outstanding warrants are as follows.
Expected
dividend
|
Expected
volatility
|
Risk-free
rate of interest
|
Expected
term
(year)
|
Exercise
price
|
Underlying
Number of shares
|
-
|
342.6%
- 409.94%
|
0.07%/1
year
0.35%/2
years
0.5%/3
years
|
As
set forth by each promissory note agreement
|
between
0.0018 and $0.0002 per share
|
As
set forth by each promissory note agreement
|
MEDICAL ALARM CONCEPTS HOLDING, INC.
|
NOTES TO FINANCIAL STATEMENTS
|
(Unaudited)
|
The
Company accounts for the conversion of convertible debt when a conversion option has been bifurcated using the general extinguishment
standards. The debt and equity linked derivatives are removed at their carrying amounts and the shares issued are measured at
their then-current fair value, with any difference recorded as a gain or loss on extinguishment of the two separate accounting
liabilities. During the three months ended September 30, 2012, the Company recognized a gain on extinguishment of $15,817
from the conversion of convertible debt with a bifurcated conversion option.
The
reconciliation of income tax benefit at the U.S. statutory rate of 34% for the quarter ended September 30, 2012 and 2011 to the
Company’s effective tax rate is as follows:
|
|
Three
months ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
U.S.
federal statutory rate
|
|
|
(34.0)
|
%
|
|
|
(34.0)
|
%
|
State
income tax, net of federal benefit
|
|
|
(9.99)
|
%
|
|
|
(9.99)
|
%
|
Change
in valuation allowance
|
|
|
43.99
|
%
|
|
|
43.99
|
%
|
Income
tax provision (benefit)
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
The
benefit for income tax is summarized as follows:
|
|
Three
months ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
Federal:
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
|
|
|
(72,326
|
)
|
|
|
(492,356
|
)
|
State
and local:
|
|
|
|
|
|
|
|
|
Current
|
|
|
-
|
|
|
|
-
|
|
Deferred
|
|
|
(21,251
|
)
|
|
|
(144,666
|
)
|
Change
in valuation allowance
|
|
|
93,577
|
|
|
|
637,022
|
|
Income
tax provision (benefit)
|
|
$
|
-
|
|
|
$
|
-
|
|
As
of September 30, 2012, the Company had approximately $9.6 million of federal and state net operating loss carryovers (“NOLs”)
which begin to expire in 2028. Utilization of the NOLs may be subject to limitation under the Internal Revenue Code
Section 382 should there be a greater than 50% ownership change as determined under regulations.
In
assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or
all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon
the generation of future taxable income during the periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making
this assessment. Based on the assessment, management has established a full valuation allowance against the entire
deferred tax asset relating to NOLs for every period because it is more likely than not that all of the deferred tax asset will
not be realized.
The
Company files U.S. federal and states of Pennsylvania tax returns that are subject to audit by tax authorities beginning with
the year ended June 30, 2008.The Company’s policy is to classify assessments, if any, for tax and related interest and penalties
as tax expense.
The
Company had only one supplier during the three months ended September 30, 2012 and 2011, respectively.
October
2, 2012 – 14,250,000 common shares issued for conversion of $2,850 of convertible debt. The shares have not been registered
under the Securities Act and were not registered or qualified in any jurisdiction.
MEDICAL ALARM CONCEPTS HOLDING, INC.
|
NOTES TO FINANCIAL STATEMENTS
|
(Unaudited)
|
November
16, 2012 - The Company issued promissory notes to an accredited investor for a cash investment of $58,000 into the Company, a
form which is convertible into shares of the Company’s common stock at a fixed conversion price equal to the lesser of the
fixed conversion price of $0.0014, or seventy five percent (75%) of the average of the closing bid price of the common stock as
reported by Bloomberg LP for the principal market for the 5 trading days preceding the conversion date. As part of this transaction
the Company also issued to the subscriber a warrant to purchase an additional 41,000,000 shares of common stock at $0.0014.
November
29, 2012 - 49,192,308 common shares issued for conversion of $9,838 of convertible debt. The shares have not been registered under
the Securities Act and were not registered or qualified in any jurisdiction.
In
February 19, 2013 - The Company reached agreements with holders of notes dated September 2, 2011 and November 15, 2012. The terms
of the agreements call for cancellation of 1,219,512 warns relative to the September 2, 2011 Note and the cancellation of 27,619,048
warrant associated with the November 15, 2012 Note.
On
February 19, 2013 – The Company reached an agreement with the holder of the May 9, 2011 convertible note. Under the terms
of the agreement the note holder and the Company agreed to cancel 1,219,512 warrants associated with this Note.
On
February 20, 2013 - The Company issued 20 million common shares for conversion of $4,000 of convertible debt relating to notes
dated March 31, 2009. The shares have not been registered under the Securities Act and were not registered or qualified in any
jurisdiction.
On
March 4, 2013 - The Company issued 890,774 shares for the exercise of warrants. The shares have not been registered under the
Securities Act and were not registered or qualified in any jurisdiction.
On
March 4, 2013 - The Company issued 4,225,000 common shares for conversion $845 convertible note dated June 8, 2011. The shares
have not been registered under the Securities Act and were not registered or qualified in any jurisdiction.
On
March 4, 2013 - The Company issued 188,175 shares for the exercise of warrants relating to a warrant agreement entered into on
June 8, 2011. The shares have not been registered under the Securities Act and were not registered or qualified in any jurisdiction.
On
March 4, 2013 - The Company issued 20,000,000 common shares for conversion of $4,000 of convertible debt. The shares have not
been registered under the Securities Act and were not registered or qualified in any jurisdiction.
On
March 4, 2013 - The Company issued 2,816,901 common shares for conversion of debt relating to notes dated May 9, 2011. The shares
have not been registered under the Securities Act and were not registered or qualified in any jurisdiction.
On
March 6, 2013 – The Company announced it has received an investment led by a strategic partner. Under the terms of the agreement
the three investor groups purchased 550,674,510 restricted common shares for a price $307,500. The company received gross proceeds
of $307,500 upon closing as there were no sales commissions or brokerage fees paid to any party. The Company plans to offer up
to an additional 39,059,490 common stock at similar terms and may from time to time complete additional investor common stock
purchase agreements. Securities purchased in this Offering may not be transferred or resold except as permitted under The Securities
Act of 1933, as amended, and applicable state securities laws, pursuant to registration or exemption therefrom. Securities purchased
in this Offering will be legended to reflect the foregoing rights and obligations. The Company reserves the right to accept or
reject any subscription in its sole discretion for any reason whatsoever and to withdraw this Offering at any time prior to the
acceptance of the subscriptions received. Subscription funds paid by a Subscriber whose subscription is rejected will be returned
promptly without interest or deduction. The Securities Purchase Agreement contains customary representations and warranties and
covenants of the Company and the Buyers. Pursuant to the terms of the Securities Purchase Agreement, the Company has agreed to
provide customary indemnification to the Buyers, their affiliates and agents against certain liabilities.
On
April 3, 2013, the Company reached an agreement with the holder of its revolving credit line. The parties agreed it was in the
best interest of both parties to cancel repayment of $236,397 of the balance of the revolving credit line carrying a percent simple
annualized interest, due and payable on December 31, 2014.
MEDICAL ALARM CONCEPTS HOLDING, INC.
|
NOTES TO FINANCIAL STATEMENTS
|
(Unaudited)
|
On
May 17, 2013, as also disclosed in the Medical Alarm Concepts Holdings, Inc. (the “Company”) definitive Schedule 14C
Information Statement dated May 17, 2013, a majority in interest of the Common Stock holders approved an amendment to its Articles
of Incorporation. The amendment is effective upon the filing of the Amended and Restated Articles of Incorporation with the Nevada
Secretary of State. On June 7, 2013, the Company filed an Amendment to its Articles of Incorporation (the "Amendment")
with the Nevada Secretary of State, affecting the increase of its authorized number of shares of Common Stock (the “Authorized
Share Increase). This amendment to the Company’s Articles of Incorporation increased the number of the Company’s authorized
shares of common stock, par value $0.001 per share, from 800,000,000 to 1,400,000,000.
On
May 28, 2013, the Company entered into an agreement with holders of its convertible debentures canceling all remanding warrants
outstanding related to convertible notes dated March 2009 and all convertible notes dated at any time during 2011, 2012, or 2013.
As of this date, all warrants outstanding have been cancelled.
On
June 6, 2013 and June 18, 2013 - The Company issued a total of 25,000,000 common shares for conversion of $5,000 of debt relating
to notes dated July 27, 2011. The shares have not been registered under the Securities Act and were not registered or qualified
in any jurisdiction.
June
24, 2013, the company issued 69 million shares for conversion of $13,800 of convertible debt. The shares have not been registered
under the Securities Act and were not registered or qualified in any jurisdiction.
On
June 25, 2013, the Company issued 481,674,510 restricted shares to various investors. The Company received total proceeds of $277,500.
Securities purchased in this offering may not be transferred or resold except as permitted under The Securities Act of 1933, as
amended, and applicable state securities laws, pursuant to registration or exemption therefrom. Securities purchased in this Offering
will be legended to reflect the foregoing rights and obligations. The Securities Purchase Agreement contains customary representations
and warranties and covenants of the Company and the Buyers. Pursuant to the terms of the Securities Purchase Agreement, the Company
has agreed to provide customary indemnification to the Buyers, their affiliates and agents against certain liabilities.
On
August 13, 2013 – The Company announced it has received $22,500 from Allround Corp, the remaining gross proceeds of an investment
led by a strategic partner. Under the terms of the agreement three other investor groups purchased 533,764,510 restricted common
shares for a price $307,500. The company received gross proceeds of $22,500 upon closing as there were no sales commissions or
brokerage fees paid to any party. The Company plans to issue an additional 39,059,490 common stock at similar terms. Securities
purchased in this Offering may not be transferred or resold except as permitted under The Securities Act of 1933, as amended,
and applicable state securities laws, pursuant to registration or exemption therefrom. Securities purchased in this Offering will
be legended to reflect the foregoing rights and obligations. The Securities Purchase Agreement contains customary representations
and warranties and covenants of the Company and the Buyers. Pursuant to the terms of the Securities Purchase Agreement, the Company
has agreed to provide customary indemnification to the Buyers, their affiliates and agents against certain liabilities.
On
August 14, 2013, the Company issued 7,269,231 restricted common shares to various investors for $16,400. Securities purchased
in this offering may not be transferred or resold except as permitted under The Securities Act of 1933, as amended, and applicable
state securities laws, pursuant to registration or exemption therefrom. Securities purchased in this Offering will be legended
to reflect the foregoing rights and obligations. The Securities Purchase Agreement contains customary representations and warranties
and covenants of the Company and the Buyers. Pursuant to the terms of the Securities Purchase Agreement, the Company has agreed
to provide customary indemnification to the Buyers, their affiliates and agents against certain liabilities.
On
December 15, 2013, the Company entered into a Global Settlement Agreement (the “Agreement”) with the holder of its
credit line and major shareholders. Under the terms of the agreement, all of the Company’s credit line and accrued interests
on credit line were forgiven and all of the convertible debt would be converted to common shares, except for the balance of $25,908.07.
In
exchange for the credit line cancellation and the conversion of convertible debt, both parties agreed on the following terms:
1) the management team agreed to modify its September 19, 2011 agreement with the Company giving up all anti-dilution rights,
2) the Company agreed to take steps to increase the number of authorized shares to accommodate the debt conversions and would
complete a reverse split of its shares, 3) The Company would file a registration statement with the SEC, and 4) the Company would
continue to file past due periodic reports with the SEC on Forms 10-Q and 10-K in order to return the Company to full reporting
status, a process that is already well underway.
On
January 13, 2014, the Company filed an Amendment to its Articles of Incorporation (the "Amendment") with the Nevada
Secretary of State, effecting the increase of its authorized number of shares of Common Stock. This amendment to the
Company’s Articles of Incorporation increased the number of the Company’s authorized shares of common stock, par
value $0.001 per share, from 1,400,000,000 to 16,000,000,000.
MEDICAL ALARM CONCEPTS HOLDING, INC.
|
NOTES TO FINANCIAL STATEMENTS
|
(Unaudited)
|
On
February 14, 2014, the Company filed a Certificate of Change (the “Certificate”), pursuant to Nevada Revised Statutes
(the “NRS”) Section 78.209 and the Company’s Reverse Stock Split of its Preferred Series A stock, Preferred
Series B stock, and Common Stock, all at the par value of $0.0001 per share, at a ratio of 1-for-800 (the “Reverse Stock
Split”) took effective. No fractional shares issued, and no cash or other consideration will be paid. Instead, the Company
issued one whole share of the post-Reverse Stock Split Common Stock to any stockholder who otherwise would have received a fractional
share as a result of the Reverse Stock Split.
As
a result of the increase of Amendment increasing authorized number of common stocks and Reverse Stock Split, number of Series
A Convertible Preferred Stock, Series B Convertible Preferred Stock and Common Stock are presented by the following table.
|
|
Par value
|
|
Authorized No. of shares
|
|
September 20, 2012
|
|
June 30, 2012
|
Series A Convertible Preferred Stock
|
|
|
$0.0001 per share
|
|
|
|
100,000
|
|
|
|
688
|
|
|
|
688
|
|
Series B Convertible Preferred Stock
|
|
|
$0.0001 per share
|
|
|
|
62,500
|
|
|
|
9,938
|
|
|
|
9,938
|
|
Common Stock
|
|
|
$0.0001 per share
|
|
|
|
20,000,000
|
|
|
|
880,578
|
|
|
|
717,103
|
|