consolidated
balance sheets
|
|
March 31, 2013
|
|
June 30, 2012
|
|
|
(Unaudited)
|
|
|
ASSETS
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
Cash
|
|
$
|
81,529
|
|
|
$
|
20,577
|
|
Accounts receivable, net of allowance of $30,240 and $nil
|
|
|
55,304
|
|
|
|
815
|
|
Inventory
|
|
|
1,271
|
|
|
|
52,042
|
|
Loan receivable
|
|
|
—
|
|
|
|
60,000
|
|
Prepaid expense
|
|
|
87,684
|
|
|
|
—
|
|
Total current assets
|
|
|
225,788
|
|
|
|
133,434
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
7,027
|
|
|
|
10,964
|
|
Intangible assets, net
|
|
|
1,197,164
|
|
|
|
1,256,041
|
|
Total non-current assets
|
|
|
1,204,191
|
|
|
|
1,267,005
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,429,979
|
|
|
$
|
1,400,439
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDRS' DEFICIT
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
2,973,388
|
|
|
$
|
8,043,577
|
|
Accounts payable
|
|
|
59,128
|
|
|
|
122,972
|
|
Deferred revenue
|
|
|
200,345
|
|
|
|
68,148
|
|
Credit line payable - related party
|
|
|
618,844
|
|
|
|
629,594
|
|
Accured expenses and other current liabilities
|
|
|
471,058
|
|
|
|
87,572
|
|
Total current liabilities
|
|
|
4,322,763
|
|
|
|
8,951,863
|
|
NON-CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Patent payable
|
|
|
2,500,000
|
|
|
|
2,500,000
|
|
Convertible notes payable, net of discount
|
|
|
258,385
|
|
|
|
196,323
|
|
Total non-current liabilities
|
|
|
2,758,385
|
|
|
|
2,696,323
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
7,081,148
|
|
|
|
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 March 31, 2013 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 March 31, 2013 and June 30, 2012, respectively
|
|
|
1
|
|
|
|
1
|
|
Common stock: $0.0001 par value; 20,000,000 shares authorized 977,219 shares and 717,103 shares issued and outstanding on March 31, 2013 and June 30, 2012, respectively
|
|
|
98
|
|
|
|
72
|
|
Additional paid-in capital
|
|
|
8,520,615
|
|
|
|
7,407,291
|
|
Accumulated deficit
|
|
|
(14,171,883
|
)
|
|
|
(17,655,111
|
)
|
Total stockholders' deficit
|
|
|
(5,651,169
|
)
|
|
|
(10,247,747
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$
|
1,429,979
|
|
|
$
|
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 March 31,
|
|
For the nine months ended March 31,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Revenue
|
|
$
|
179,110
|
|
|
$
|
45,624
|
|
|
$
|
464,475
|
|
|
$
|
163,285
|
|
Cost of revenue
|
|
|
105,049
|
|
|
|
77,217
|
|
|
|
249,003
|
|
|
|
126,944
|
|
Gross profit
|
|
|
74,061
|
|
|
|
(31,593
|
)
|
|
|
215,472
|
|
|
|
36,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expense
|
|
|
73,720
|
|
|
|
18,329
|
|
|
|
178,165
|
|
|
|
48,878
|
|
General and administrative
|
|
|
113,769
|
|
|
|
200,491
|
|
|
|
379,408
|
|
|
|
591,831
|
|
Total operating expenses
|
|
|
187,489
|
|
|
|
218,820
|
|
|
|
557,573
|
|
|
|
640,709
|
|
Loss from operations
|
|
|
(113,429
|
)
|
|
|
(250,413
|
)
|
|
|
(342,102
|
)
|
|
|
(604,368
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative instrument
|
|
|
(324,176
|
)
|
|
|
(19,927,535
|
)
|
|
|
(4,290,296
|
)
|
|
|
11,529,439
|
|
Interest expense
|
|
|
105,356
|
|
|
|
101,842
|
|
|
|
490,237
|
|
|
|
907,508
|
|
Gain on sale of subscriber accounts
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(128,362
|
)
|
Gain on debt extinguishment
|
|
|
—
|
|
|
|
—
|
|
|
|
(25,271
|
)
|
|
|
—
|
|
Other expense
|
|
|
—
|
|
|
|
80,000
|
|
|
|
—
|
|
|
|
80,000.00
|
|
Total other (income) loss
|
|
|
(218,820
|
)
|
|
|
(19,745,693
|
)
|
|
|
(3,825,330
|
)
|
|
|
12,388,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
|
105,391
|
|
|
|
19,495,280
|
|
|
|
3,483,228
|
|
|
|
(12,992,953
|
)
|
Income tax provision
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
105,391
|
|
|
$
|
19,495,280
|
|
|
$
|
3,483,228
|
|
|
$
|
(12,992,953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share - basic and diluted
|
|
$
|
0.11
|
|
|
$
|
35.44
|
|
|
$
|
3.94
|
|
|
$
|
25.59
|
|
Weighted average number of common shares - basic and diluted
|
|
|
943,108
|
|
|
|
550,050
|
|
|
|
883,336
|
|
|
|
507,729
|
|
See
accompanying notes to the consolidated financial statements.
medical
alarm concepts holdings, inc.
consolidated
statements of cash flows
(Unaudited)
|
|
For the nine months ended March 31,
|
|
|
2013
|
|
2012
|
Net loss
|
|
$
|
3,483,228
|
|
|
$
|
(12,992,953
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
28,267
|
|
|
|
51,267
|
|
Change in fair value of derivative instrument
|
|
|
(4,290,297
|
)
|
|
|
11,529,439
|
|
Gain on debt extinguishment
|
|
|
(25,271
|
)
|
|
|
—
|
|
Amortization of patent
|
|
|
58,877
|
|
|
|
58,877
|
|
Non-cash interest expense
|
|
|
311,424
|
|
|
|
724,119
|
|
Depreciation
|
|
|
3,937
|
|
|
|
3,938
|
|
Bad debt expense
|
|
|
—
|
|
|
|
80,000
|
|
Change in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(54,489
|
)
|
|
|
(1,924
|
)
|
Inventory
|
|
|
50,771
|
|
|
|
12,651
|
|
Prepaid expenses
|
|
|
(87,684
|
)
|
|
|
—
|
|
Accounts payable
|
|
|
(63,844
|
)
|
|
|
(31,679
|
)
|
Accrued expenses
|
|
|
103,486
|
|
|
|
61,851
|
|
Deferred revenue
|
|
|
132,197
|
|
|
|
(9,171
|
)
|
Net Cash Used in Operating Activities
|
|
|
(349,398
|
)
|
|
|
(513,585
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Cash received from loan receivable
|
|
|
60,000
|
|
|
|
(140,000
|
)
|
Proceeds from convertible notes
|
|
|
58,000
|
|
|
|
222,208
|
|
Proceeds from credit line
|
|
|
—
|
|
|
|
435,294
|
|
Proceeds from issuance of common stock, net of costs
|
|
|
23,100
|
|
|
|
—
|
|
Deposit for stock to be issued
|
|
|
280,000
|
|
|
|
—
|
|
Repayment of credit line
|
|
|
(10,750
|
)
|
|
|
—
|
|
Net Cash Provided By Financing Activities
|
|
|
410,350
|
|
|
|
517,502
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH
|
|
|
60,952
|
|
|
|
3,917
|
|
|
|
|
|
|
|
|
|
|
CASH AT BEGINNING OF PERIOD
|
|
|
20,577
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
CASH AT END OF PERIOD
|
|
$
|
81,529
|
|
|
$
|
3,939
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest expense
|
|
$
|
75,000
|
|
|
$
|
148,500
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Conversion of convertible notes to common stock
|
|
$
|
46,083
|
|
|
$
|
14,120
|
|
|
|
|
|
|
|
|
|
|
Derivative liability classified to additional paid-in capital upon conversion of related convertible notes
|
|
$
|
792,646
|
|
|
$
|
436,978
|
|
|
|
|
|
|
|
|
|
|
Derivative liability classified to additional paid-in capital upon forgiveness of warrants
|
|
$
|
259,443
|
|
|
$
|
—
|
|
See
accompanying notes to the consolidated financial statements.
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”).
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.
Inventory
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 March 31, 2013.
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 March 31, 2013.
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:
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 March 31, 2013.
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.
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 March 31, 2013, the Company has working capital deficit of $4,096,975;
did not generate cash from its operations; had stockholders’ deficit of $5,401,170 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 March 29, 2014, this due date was extended to June 30, 2014.
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
March 31, 2013 and 2012 respectively.
Patent, stated at cost,
less accumulated amortization at March 31, 2013 and June 30, 2012, consisted of the following:
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
|
|
March 31, 2013
|
|
June 30, 2012
|
Patent
|
|
$
|
2,500,000
|
|
|
$
|
2,500,000
|
|
Less: accumulated amortization
|
|
|
(1,302,836
|
)
|
|
|
(1,243,959
|
)
|
|
|
$
|
1,197,164
|
|
|
$
|
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.
|
7.
|
CONVERTIBLE NOTES PAYABLE
|
During the nine months
ended March 31, 2013, the Company issued convertible notes for total amount of $58,000. The convertible notes are 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 and due in November 15, 2014.
During the nine months
ended March 31, 2013, convertible notes with total face amount of $46,083 were converted to 204,527 shares of common stock.
The following table summarizes
the convertible promissory notes movement:
Balance at June 30, 2012
|
|
|
347,610
|
|
Convertible notes issued
|
|
|
58,000
|
|
Convertible notes converted
|
|
|
(46,083
|
)
|
Total
|
|
|
359,527
|
|
Less: debt discount
|
|
|
(101,142
|
)
|
Balance at March 31, 2013
|
|
|
258,385
|
|
During the nine months
ended March 31, 2013, 227,251 shares of common stocks were issued to various investors resulting from their conversion of $46,083
convertible notes.
During the nine months
ended March 31, 2013, 32,865 shares of common stocks were issued to various investors for $23,100 cash.
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.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
|
Par value
|
Authorized No. of shares
|
March 31, 2013
|
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
|
977,219
|
717,103
|
Stock warrant activities
for the six months ended March 31, 2013 is summarized as follows:
|
|
Number of shares
|
|
|
|
Prior to Reverse Stock Split
|
|
After Reverse Stock Split
|
Weighted average exercise price
|
Outstanding at June 30, 2012
|
|
139,683,763
|
|
174,605
|
0.0002
|
Granted
|
|
41,000,000
|
|
51,250
|
0.0014
|
Exercised
|
|
1,181,707
|
|
1,477
|
0.0002
|
Forgiven
|
|
94,542,269
|
|
118,178
|
0.0012
|
Outstanding at March 31, 2013
|
|
84,959,787
|
|
106,200
|
0.0004
|
On August 3, 2012, a
shareholder agreed to forgive warrants to purchase 59,606,148 shares (prior to Reverse Stock Split) of common stock. The exercise
prices 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 prices
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.
On February 19, 2013,
a shareholder agreed to forgive warrants to purchase 33,716,609 shares (prior to Reverse Stock Split) of common stock. The exercise
prices of warrants forgiven ranged from $0.0002 to $0.0014 per share. Fair market value of warrants forgiven was classified as
derivative liability totaled $76,968 and was recorded as additional paid-in capital.
On March 4, 2013, two
investors exercised warrants to purchase 1,181,707 shares (prior to Reverse Stock Split) of common stocks on cashless basis. Resulting
from their conversion, the Company issued 1,078,949 (prior to Reverse Stock Split) shares of common stocks to them.
|
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 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 $203,230 and $637,600 has been included
as a component of interest expense in the statement of comprehensive loss during the three months ended March 31, 2013 and 2012,
respectively. During the nine months ended March 31, 2012, the Company recorded $11,529,439 into other expense, resulting from
changes of fair value of derivative instrument; comparably during the same period of 2013, the Company recorded other income of
$4,290,296.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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
|
-
|
223.68% - 409.94%
|
0.07%/1 year
0.35%/2 years
0.5%/3 years
|
As set forth by each promissory note agreement
|
between 0.0014 and $0.0002 per share
|
As set forth by each promissory note agreement
|
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 nine months ended March 31, 2013, the Company recognized a gain on extinguishment of $25,271 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 six months ended March 31, 2013 and 2012 to the Company’s effective
tax rate is as follows:
|
|
Nine months ended March 31,
|
|
|
2013
|
|
2012
|
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:
|
|
Nine months ended March 31,
|
|
|
2013
|
|
2012
|
Federal:
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
—
|
|
|
$
|
—
|
|
Deferred
|
|
|
(74,387
|
)
|
|
|
(685,900
|
)
|
State and local:
|
|
|
|
|
|
|
|
|
Current
|
|
|
—
|
|
|
|
—
|
|
Deferred
|
|
|
(21,857
|
)
|
|
|
(201,534
|
)
|
Change in valuation allowance
|
|
|
96,244
|
|
|
|
887,434
|
|
Income tax provision (benefit)
|
|
$
|
—
|
|
|
$
|
—
|
|
As of March 31, 2013,
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.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 March 31, 2013 and 2012, respectively.
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.
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 31,250 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.
On June 24, 3013, the
Company issued 86,250 shares for conversion of $13,800 of convertible notes. The shares have not been registered under the Security
Act and were not registered or qualified in any jurisdiction.
On June 25,
2013, the Company issued 602,093 shares of common stock to various investors for $227,500.
On August
14, 2013, the Company issued 9,086 restricted common shares various investors for $13,050. 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 31, 2013,
the Company issued 318,467 shares of common stock for conversion of $50,955 of convertible notes.
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.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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.
On February 5, 2014,
the Company issued 113,931 shares of common stock to two investors for $52,500.
On February 5,
2014 the Company issued 50,000 shares of common stocks to a shareholder as compensation of consulting services provided to
the Company.
On February 5, 2014,
the Company issued 36,250 shares of common stocks to an investor as repayment of promissory note of $29,000, which was dated June
14, 2013.
On February 5, 2014,
the Company issued 1,493,669 shares of common stocks to the Company’s management and various assignees pursuant to Global
Settlement Agreement.
On February 6, 2014,
the Company issued 1,805,463 shares of common stocks to various debt holders pursuant Global Settlement Agreement.
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
|
March 31, 2013
|
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
|
977,219
|
717,103
|