MEDICAL ALARM CONCEPTS HOLDING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| |
For the six months ended December 31, |
| |
2015 | |
2014 |
Net loss | |
$ | (216,494 | ) | |
$ | (176,390 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Stock-based compensation | |
| 166,919 | | |
| 1,750 | |
Change in fair value of derivative instrument | |
| — | | |
| 11,335 | |
Amortization of patent | |
| — | | |
| 39,251 | |
Depreciation | |
| — | | |
| 461 | |
Change in operating assets and liabilities | |
| | | |
| | |
Accounts receivable | |
| (27,898 | ) | |
| 22,479 | |
Inventory | |
| 16,608 | | |
| (97,655 | ) |
Prepaid expense | |
| 25,195 | | |
| (42,482 | ) |
Accounts payable | |
| 29,788 | | |
| 26,536 | |
Accrued expenses and other current liabilities | |
| (5,062 | ) | |
| (11,728 | ) |
Deferred revenue | |
| (26,955 | ) | |
| (16,559 | ) |
Net cash used in operating activities | |
| (37,899 | ) | |
| (243,002 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
Loan to employee | |
| — | | |
| (30,000 | ) |
Net cash used in investing activities | |
| — | | |
| (30,000 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Proceeds from (repayment for) note payable - other | |
| 16,108 | | |
| (5,000 | ) |
Proceeds from credit line - related party | |
| 9,500 | | |
| 275,000 | |
Repayment to related party | |
| (3,920 | ) | |
| — | |
Proceeds from loan payable | |
| 20,000 | | |
| — | |
Net cash provided by financing activities | |
| 41,688 | | |
| 270,000 | |
| |
| | | |
| | |
NET INCREASE (DECREASE) IN CASH | |
| 3,789 | | |
| (3,002 | ) |
| |
| | | |
| | |
CASH AT BEGINNING OF PERIOD | |
| 1,335 | | |
| 7,673 | |
| |
| | | |
| | |
CASH AT END OF PERIOD | |
$ | 5,124 | | |
$ | 4,671 | |
| |
| | | |
| | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | |
| | | |
| | |
| |
| | | |
| | |
Cash paid for interest expense | |
$ | — | | |
$ | 75,000 | |
Cash paid for income taxes | |
$ | — | | |
$ | — | |
Derivative liabilities classified to additional paid-in capital upon conversion of related convertible notes | |
$ | — | | |
$ | 42,101 | |
Forgiveness of convertible notes | |
$ | — | | |
$ | 25,908 | |
See accompanying notes to these unaudited
consolidated financial statements.
MEDICAL ALARM CONCEPTS
HOLDING, INC.
NOTES CONSOLIDATED 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”).
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, 2015, 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, 2015.
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 CONSOLIDATED 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 December 31, 2015.
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 December 31, 2015.
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 December 31, 2015.
MEDICAL ALARM CONCEPTS
HOLDING, INC.
NOTES CONSOLIDATED TO FINANCIAL
STATEMENTS
(Unaudited)
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.
MEDICAL ALARM CONCEPTS
HOLDING, INC.
NOTES CONSOLIDATED TO FINANCIAL
STATEMENTS
(Unaudited)
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.
Net Income per
Common Share
Net income per common
share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net income per common share
is computed by taking net income divided by the weighted average number of common shares outstanding for the period. Diluted net
income per common share is computed by dividing net income 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.
Commitments and
contingencies
The Company follows
subtopic 450-20 of the FASB ASC to report accounting for contingencies. Liabilities for loss contingencies arising from claims,
assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred
and the amount of the assessment can be reasonably estimated.
Recent Accounting
Pronouncements
In April 2015, the
FASB updated the guidance within ASC 835, Interest. The update provides guidance on simplifying the presentation of debt issuance
cost. The amendments require debt issuance costs related to a recognized debt liability be presented in the balance sheet as a
direct deduction from the carrying amount of that debt liability. The new guidance is effective for fiscal years beginning after
December 15, 2015, and interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing
the impact on its consolidated financial statements.
There were no other
recent accounting pronouncements that have had a material effect on the Company’s financial position or results of operations
MEDICAL ALARM CONCEPTS
HOLDING, INC.
NOTES CONSOLIDATED TO FINANCIAL
STATEMENTS
(Unaudited)
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 December 31, 2015, the Company has working capital deficit of $905,187; did
not generate significant cash from its operations; had stockholders’ deficit of $905,187 and had operating loss for prior
two 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, or by alternative methods.
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 December 4, 2014,
the Company loaned $30,000 to an employee of the Company. This loan is non-interest bearing and due on December 31, 2015. The employee
pledged 60,000 shares of the Company’s common stock as collateral. On December 28, 2015, the due date of this loan was extended
to December 31, 2016.
| 5. | CREDIT LINE – RELATED PARTY |
On September 30, 2014,
the Company entered into a line of credit with Medi Pendant New York, Inc. (“MNY”), which is partially owned by the
Company’s CEO. Under the line of credit agreement, the Company will be able to borrow up to $300,000 with the rate of interest
of 6.5% per annum. The maturity date of the credit line is September 30, 2017. The Company has the option to extend the maturity
date for one year to September 30, 2018. On January 31, 2015, the limit on the line of credit was increased to $500,000 with same
interest rate and due date. The Company recorded accrued interest on the credit line of $6,386 and$12,735 for the three and six
months ended December 31, 2015.
The company agreed
to issue 200,000 shares of common stock to one of the owner of MNY to exchange for the increase of line of credit. These shares
were value at $28,000 which was the fair market value at the grant date and were issued on October 19, 2015. (See Note 8)
MEDICAL ALARM CONCEPTS
HOLDING, INC.
NOTES CONSOLIDATED TO FINANCIAL
STATEMENTS
(Unaudited)
Note payable - Other
consists of the following:
| |
| |
As of December 31, 2015 | |
As of June 30, 2015 |
| a | | |
Celtic Bank | |
$ | 20,156 | | |
$ | 15,690 | |
| b | | |
On Deck Capital, Inc. | |
| 38,353 | | |
| 70,604 | |
| c | | |
First US Funding | |
| 15,787 | | |
| — | |
| d | | |
Knights Capital Funding | |
| 28,106 | | |
| — | |
| Total | | |
| |
$ | 102,402 | | |
$ | 86,294 | |
a. | | The Company obtained various Loans from Celtic Bank with interest rate from 1% to
2.75% per month and due in six months from the borrowing date. For outstanding balance as of December 31, 2015, $4,689 will be
due in January 2016; $4,693 will be due in February 2016; $4,699 will be due in March 2016; $2,367 will be due in April 2016;
$2,437 will be due in May 2016; and $1,271 will be due in June 2016. |
b. | | In June 2015, the company obtained a loan of $75,000 from On Deck Capital, Inc. with
interest at 55% per annual and matures on June 2, 2016. |
c. | | On September 3, 2015, the Company entered into purchase agreement with First US Funding,
an unrelated financing company, in the amount of $42,600 less an original discount of $12,600 for net proceeds of $30,000. Under
the terms of the agreement the Company sells, assigns, and transfers to First US Funding all of its interests in each of its future
receivables due to the Company from its customers and credit card processor, until the loan is paid off. The Company and First
US Funding have agreed that the payment of the purchase amount will be repaid by the Company in 126 payments of $338 due each
business day beginning on the first day after the loan was disbursed, until the full amount due under the agreement is paid. The
agreement is personally guaranteed by the Chief Executive Officer of the Company. The Company has recorded the amount of the total
repayment as a financing debt, with the difference between the proceeds received and the total repayment amount as a discount,
which is being amortized as imputed interest (at an effective rate of 147%) over the life of the agreement which is the date that
the total repayments will be made assuming the Company is timely in all of its payments. |
d. | | On December 15, 2015, the Company entered into purchase agreement with Knight Capital
Funding, an unrelated financing company, in the amount of $40,020 less an original discount of $11,020 for net proceeds of $29,000.
Under the terms of the agreement the Company sells, assigns, and transfers to Knight Capital Funding all of its interests in each
of its future receivables due to the Company from its customers and credit card processor, until the loan is paid off. The Company
and Knight Capital Funding have agreed that the payment of the purchase amount will be repaid by the Company in 154 payments of
$260 due each business day beginning on the first day after the loan was disbursed, until the full amount due under the agreement
is paid. The agreement is personally guaranteed by the Chief Executive Officer of the Company. The Company has recorded the amount
of the total repayment as a financing debt, with the difference between the proceeds received and the total repayment amount as
a discount, which is being amortized as imputed interest (at an effective rate of 119%) over the life of the agreement which is
the date that the total repayments will be made assuming the Company is timely in all of its payments. |
MEDICAL ALARM CONCEPTS
HOLDING, INC.
NOTES CONSOLIDATED TO FINANCIAL
STATEMENTS
(Unaudited)
During the six months
ended December 31, 2015, the Company received $20,000 loan from an unrelated individual. This loan is non-interest bearing and
due on demand. On January 13, 2015, the Company issued 280,000 shares of common stock to repay the loan in full. (See Note 11)
On October 19, 2015,
the Company issued 400,000 shares to two consultants for services performed per consulting agreements and 200,000 shares to one
of the owner of MNY for compensation of increasing the line of credit to $500,000. These shares were valued at $120,000 and $28,000,
respectively, based on quoted market price at date of grant.
The reconciliation
of income tax benefit at the U.S. statutory rate of 34% for the six months ended December 31, 2015 and 2014 to the Company’s
effective tax rate is as follows:
| |
Six months ended December 31, |
| |
2015 | |
2014 |
U.S. federal statutory rate | |
| (34.00 | )% | |
| (34.00 | )% |
State income tax, net of federal benefit | |
| (9.99 | )% | |
| (9.99 | )% |
Change in valuation allowance | |
| 43.99 | % | |
| 43.99 | % |
Income tax provision (benefit) | |
| 0.00 | % | |
| 0.00 | % |
The benefit for income
tax is summarized as follows:
| |
Six months ended December 31, |
| |
2015 | |
2014 |
Federal: | |
| | | |
| | |
Current | |
$ | — | | |
$ | — | |
Deferred | |
| (73,608 | ) | |
| (59,973 | ) |
State and local: | |
| | | |
| | |
Current | |
| — | | |
| — | |
Deferred | |
| (21,628 | ) | |
| (17,621 | ) |
Change in valuation allowance | |
| 95,236 | | |
| 77,594 | |
Income tax provision (benefit) | |
$ | — | | |
$ | — | |
As of December 31,
2015, the Company had approximately $10 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.
MEDICAL ALARM CONCEPTS
HOLDING, INC.
NOTES CONSOLIDATED TO FINANCIAL
STATEMENTS
(Unaudited)
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 and six months ended December 31, 2015 and 2014,
respectively.
On January 13, 2015,
the Company issued 280,000 shares of common stock to repay the loan. (See Note 7)
| Item 2. | MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
This Quarterly
Report on Form 10-Q for the three and six months ended December 31, 2015 contains “forward-looking statements” within
the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended, including statements that include the words
“believes,” “expects,” “anticipates,” or similar expressions. These forward-looking statements
include, among others, statements concerning our expectations regarding our working capital requirements, financing requirements,
business, growth prospects, competition and results of operations, and other statements of expectations, beliefs, future plans
and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. The forward-looking
statements in this Quarterly Report on Form 10-Q for the three and three months ended December 31, 2015 involve known and unknown
risks, uncertainties and other factors that could cause our actual results, performance or achievements to differ materially from
those expressed in or implied by the forward-looking statements contained herein.
Overview and
Recent Events
Our principal executive
offices are located at 200 West Church Road, Suite B, King of Prussia, PA 19406, and our telephone number is (877) 639-2929. Our
website addresses’ are www.medipendant.com, www.ihelpalarm.com and www.medicalalarmconcepts.com.
The Company manufactures
medical alarm devices that are used to summon help in the event of an emergency. While these devices are primarily designed for
the elderly, there is also a market for those who are physically disabled, as well as for persons living alone.
The Company was organized
in mid-2008. The operation was financed with a considerable amount of toxic convertible debt. This type of financing, along with
several other issues, prevented the Company from realizing a robust growth rate for its first few years of operation. Since that
time, considerable management time has been spent and investor money utilized to turn the Company's operation around.
The Company's flagship
product is called the MediPendant®, which is a personal emergency alarm that is used to summon help in the event of an emergency
at home. Since approximately 60% of all medical alarms currently being sold in the United States right now, are first-generation
technologies that require the user to speak and listen through a central base station unit, the MediPendant™ has found success
by offering a product that has the speaker in the pendant, enabling the user to simply speak and listen directly through the pendant
in the event of an emergency.
The MediPendant®
is designed to be worn in the bath or shower and offers a 600-foot range, so that the wearer can operate the unit from virtually
anywhere within their home or on their property. The product is extremely durable, very reliable, and offers an extremely long
battery life. The MediPendant® has voice prompts that alert the user of the operational status of the device. This gives the
user some peace of mind during an emergency because they know with certainty that their distress signal has been activated and
help is being summoned.
The Company also manufactures
the iHelp™ mobile medical alarm device. The iHelp™ is a next-generation medical alarm that utilizes T-Mobile’s
2G network. Users of the iHelp™ mobile medical alarm can take the device with them wherever there is cellular service. There
is no base station and only requires a cellular signal in order to work.
The company has invested
time, manpower, and money into the development of this product. On September 30, 2014, the company signed an agreement for a $300,000
line of credit to enable it to launch the iHelp™, and to build the infrastructure that allowed the Company to buy and track
air time from T-Mobile for cellular operation of this unit. The credit line was increased to $500,000 in January 2015. The iHelp™
has enhanced features and functions including an advanced GPS system, the ability to remotely locate a loved one, and a dealer
portal that enables dealers to manage their own iHelp™ customer base. A significant amount of time was spent on the backend
systems, including the dealer portal. iHelp™ dealers have significant benefits, most importantly the ease of use in ordering
product, activating and deactivating customers, tracking their customer usage, and creating and printing a variety of reports to
assist in billing and collecting revenues. The iHelp™ dealer program is a turn-key program that offers the dealer the opportunity
to provide his/her customers with the latest products without having to change his/her own backend.
The Company is in
the process of implementing a new product called the iHelp+™ (iHelp plus 3G). iHelp+™ is a cellular medical alert system
that operates on a 3G network. Initially, it will be operating on the AT&T network (GSM - Global), and within a few months
it will also be able to operate on the Verizon (CDMA - USA) network as well. It is Bluetooth and Wi-Fi enabled. It has a much broader
reach than the iHelp™, as well as additional functions, such as fall detection and geo-fencing (ability to pre-set an area
and alert loved ones if the user leaves or enters the pre-set area).
Additionally, the
iHelp+™ will be used as the communication device for a wellness bracelet and other Bluetooth-enabled devices used for collecting
vital sign data and storing the data in any requested manner in encrypted HIPAA-compliant cloud servers for access by proper parties.
On July 10, 2008,
the Company entered into a Purchase Agreement and Patent Assignment Agreement (the “Agreement”) effective July 31,
2008. The Company was obligated to pay the seller $2,500,000 on June 30, 2012. The Agreement specifies interest of 6% payable monthly,
commencing on July 31, 2008. The seller had the right to reacquire all patents and applications if payment was not made on June
30, 2012; however, this agreement has been extended quarterly since June 30, 2012. The patent purchase agreement refers to patent
#RE41845 and RE41392. The scope of the patents are as follows: A personal emergency communication system includes a user-carried
portable communication unit having a single button, which when depressed by the user, wirelessly sends a call request signal to
a base unit. The base unit initiates a telephone call through a dial-up network to an emergency response center and places an operator
at the emergency center responder in wireless voice communication with the portable unit when the call is connected. The telephone
number to be called can be stored in at least one of the portable unit and the base unit. A speech synthesizer operating in combination
with automated voice messages stored in at least one of the base unit and portable unit system memory are used to advise the user
of the status of the call, and to provide the user with verbal confirmation that functional systems of the base unit are operating
properly.
In June 2015, the
Company made a decision to terminate its patent agreement with Nevin Jenkins, the patent holder. Mr. Jenkins and the Company agreed
to a new revised licensing agreement whereby the company still has the ability to order product utilizing the patent. The company
feels that the old agreement was too costly, and money would be better served based on its decision of investing in more cellular
type mPERS devices. Its new agreement with Mr. Jenkins will enable the Company to continue selling the MediPendant® based on
a cost plus structure.
Going Concern
These consolidated
financial statements are presented on the basis that we 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, the Company has working capital deficit of $905,187, did not generate significant
cash from its operations, had stockholders’ deficit of $905,187 and had operating loss for prior two years. These circumstances
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, or by alternative methods.
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.
Results of
Operations
Results of Operations
for Three Months Ended December 31, 2015 and 2014
Net Sales
Net sales generated
during the quarters ended December 31, 2015 and 2014 were $342,686 and $241,077, respectively; representing a 42% or $101,609 increase,
resulting from a change in strategic business direction toward larger orders to dealers with its new product(s), and more widespread
product distribution. The Company believes this change in business direction will lead to stronger growth and margins and higher
overall sales during future periods. During the quarters ended December 31, 2015 and 2014, net sales were generated from sales
to distributors, resellers and from direct sales to consumers who pay the Company for monthly monitoring services.
Cost of
Sales
Cost of sales incurred
during quarters ended December 31, 2015 and 2014 were $71,033 and $41,144, respectively, representing a 73% or $29,889 increase.
The increase in cost of sales was mainly due to the Company’s new product iHelp and its sales method of selling equipment
to other dealers, thereby increasing revenues and cost of sales.
Gross Profit
Gross profit generated
during quarters ended December 31, 2015 and 2014 was $271,653 and $199,933, respectively. The gross profit margin for quarters
ended December 31, 2015 and 2014 was 79% and 83%, respectively. The gross profit margin remains stable during both periods.
General
and Administrative
General and administrative
expenses for quarters ended December 31, 2015 and 2014 were $269,284 and $211,958, respectively; representing 27% or $57,326 increase
in general and administrative expense mainly due to common stock issuance for services and increased salary amount in the quarter
ended December 31, 2015.
Selling
Expenses
Selling expenses
incurred during quarters ended December 31, 2015 and 2014 were $19,999 and $69,504, respectively. The $49,505 or 71% decrease was
mainly due to the reduced amount of marketing expenses charged by Costco.
Change in
Fair Value of Derivative Instrument
Changes in fair
value of derivative instrument generated income of $8,096 during quarter ended December 31, 2014. The Company didn’t have
any derivative liabilities during the quarter ended December 31, 2015.
Interest
expense-related party
Interest expense-related
party was $6,386 and $2,934 for the quarters ended December 31, 2015 and 2014, respectively.
Interest
Expense
Interest expense
for the quarters ended December 31, 2015 and 2014 was $15,098 and $38,030, respectively. The $22,932 or 60% decrease in interest
expense was mainly due to the termination of patent loan agreement.
Net Loss
Net loss incurred
during quarters ended December 31, 2015 and 2014 was $39,114 and $114,397, respectively. Change in net loss is due to the reasons
stated above.
Results of Operations
for Six Months Ended December 31, 2015 and 2014
Net Sales
Net sales generated
during the six months ended December 31, 2015 and 2014 were $671,632 and $512,081, respectively; representing a 31% or $159,551
increase, resulting from a change in strategic business direction toward more widespread product distribution to dealers. The Company
believes this change in business direction will lead to stronger growth and margins and higher overall sales during future periods.
During the six months ended December 31, 2015 and 2014, net sales were generated from sales to distributors, resellers and from
direct sales to consumers who pay the Company for monthly monitoring services.
Cost of
Sales
Cost of sales incurred
during six months ended December 31, 2015 and 2014 were $209,957 and $103,059, respectively, representing a 104% or $106,898 increase.
The increase in cost of sales was mainly due to the Company’s new product iHelp and its sales method of selling equipment
to other dealers, thereby increasing revenues and as a result sales margins.
Gross Profit
Gross profit generated
during six months ended December 31, 2015 and 2014 was $461,675 and $409,022, respectively. The gross profit margin for six months
ended December 31, 2015 and 2014 was 69% and 80%, respectively. The decrease in gross profit margin was mainly due to more revenue
generated from the sales of its new product iHelp directly to other dealers, which has lower gross profit margin.
General
and Administrative
General and administrative
expenses for six months ended December 31, 2015 and 2014 were $585,354 and $365,714, respectively; representing 60% or $219,640
increase in general and administrative expense mainly due to common stock issuance for services and increased salary amount in
the six months ended December 31, 2015.
Selling
Expenses
Selling expenses
incurred during six months ended December 31, 2015 and 2014 were $52,932 and $129,884, respectively. The $76,952 or 59% decrease
was mainly due to the reduced amount of marketing expenses charged by Costco.
Change in
Fair Value of Derivative Instrument
Changes in fair
value of derivative instrument generated expense of $11,335 during six months ended December 31, 2014. The Company didn’t
have any derivative liabilities during the six months ended December 31, 2015.
Interest
expense-related party
Interest expense-related
party was $12,735 and $2,934 for the six months ended December 31, 2015 and 2014, respectively.
Interest
Expense
Interest expense
for the six months ended December 31, 2015 and 2014 was $27,148 and $75,545, respectively. The $48,397 or 64% decrease in interest
expense was mainly due to the termination of patent loan agreement.
Net Loss
Net loss incurred
during six months ended December 31, 2015 and 2014 was $216,494 and $176,390, respectively. Change in net loss is due to the reasons
stated above.
Liquidity
and Capital Resources
As of December 31,
2015 and June 30, 2015, we had $5,124 and $1,335 in cash, respectively.
During six months
ended December 31, 2015 and 2014, our operating activities incurred net cash outflow of $37,899 and $243,002, respectively. Main
reasons for the change in net cash used in operating activities were outlined below:
| 1. | Changes in fair value of derivative instrument during six months
ended December 31, 2014 generated non-cash expense of $11,335; there was no transaction of similar nature during corresponding
period current year; |
| 2. | During six months ended December 31, 2015 and 2014, stock-based compensation
generated non-cash expense of $166,919 and $1,750, respectively. |
| 3. | During six months ended December 31, 2014, amortization of patent
generated non-cash loss of $39,251; during the same period of current year, there was no accounting transaction of similar nature. |
| 4. | During six months ended December 2015, the increase of accounts receivable
generated net cash outflow of $27,898; during the comparable period of 2014, the recollection of accounts receivable generated
net cash inflow of $22,479. |
| 5. | During six months ended December 2015, the decrease of prepaid expense
generated net cash inflow of $25,195; during the comparable period of 2014, the increase of prepaid expense generated net cash
outflow of $42,482. |
| 6. | During six months ended December 31, 2015 and 2014, the decrease
of deferred revenue generated cash outflow of $26,955 and $16,559, respectively; |
| 7. | During six months ended December 31, 2015, the Company generated
net cash inflow of $16,608 through decreasing of inventories; comparably during the same period of 2014, the purchasing of inventory
generated net cash outflow of $97,655. |
During
six months ended December 31, 2014, our investing activities incurred net cash outflow of $30,000 as the Company lent $30,000
to one of employees. There was no transaction in similar nature during same period of current year.