NOTES TO CONSOLIDATED 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.
Certificate of Amendment
On May 3, 2016, the Company filed a
Certificate of Amendment (the “Amendment”) to its Articles of Incorporation, as amended, to increase the total
number of shares of authorized capital stock to 410,000,000 shares consisting of (i) 400,000,000 shares of Common Stock and
(ii) 10,000,000 shares of Preferred Stock with such rights and preferences as determined by the Company’s Board of
Directors. The Amendment was approve d by written consent of the Company’s shareholder holding a majority of the
Company’s voting capital stock on March 15, 2016.
MEDICAL ALARM
CONCEPTS HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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
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, 2016.
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, 2016.
MEDICAL ALARM
CONCEPTS HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Convertible instruments
and derivative financial instruments
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 ASC and paragraph 815-40-25
of the FASB ASC. 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.
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.
|
MEDICAL ALARM
CONCEPTS HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 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, 2016.
The derivative liability
in connection with the conversion feature of the convertible debt and warrants is classified as a level 3 liability, and is 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.
MEDICAL ALARM
CONCEPTS HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
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 TO CONSOLIDATED 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 March 31, 2016, the Company has a working capital deficit of
$555,307; did not generate significant cash from its operations; had a stockholders’ deficit of $952,807 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.
Due to related party
consists of advances from company’s Chief Executive Officer. The amount is non-interest bearing and due on demand.
|
6.
|
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 $19,378 and $8,421 for the nine months
ended March 31, 2016 and 2015; $6,643 and $5,487 for the three months ended March 31, 2016 and 2015, respectively.
The company agreed
to issue 200,000 shares of common stock to one of the owners 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 10)
MEDICAL ALARM
CONCEPTS HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note payable - Other
consists of the following:
|
|
|
|
As of March 31, 2016
|
|
As of June 30, 2015
|
|
a
|
|
|
Celtic Bank
|
|
$
|
6,692
|
|
|
$
|
15,690
|
|
|
b
|
|
|
On Deck Capital, Inc.
|
|
|
17,021
|
|
|
|
70,604
|
|
|
c
|
|
|
First US Funding
|
|
|
—
|
|
|
|
—
|
|
|
d
|
|
|
Knights Capital Funding
|
|
|
22,868
|
|
|
|
—
|
|
|
Total
|
|
|
|
|
$
|
46,581
|
|
|
$
|
86,294
|
|
a. The
Company obtained various Loans from Celtic Bank with interest rates ranging from 1% to 2.75% per month and due in six months
from the borrowing date.
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. The loan was paid off on March 31, 2016.
d. On December 15,
2015, the Company entered into a 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 TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
8.
|
CONVERTIBLE NOTES PAYABLE
|
On March 1, 2016
and March 3, 2016, the Company closed the private placement and received an aggregate of $612,500 by issuing $660,000 and
$13,750 unsecured convertible notes (“convertible notes”) and warrants to two investors, net of original issue
discount of $61,250 per the subscription agreements. The convertible notes bear no interest and due in one year from the date
of issuance. The convertible notes are convertible into shares of the Company’s common stock at a conversion price
equal to $0.01 per share. Warrants were issued to purchase 6,804,172 shares of Series C Convertible Preferred Stock at $0.09
per share. The conversion and warrant exercise prices are subject to certain price adjustment terms.
The Company is prohibited
from effecting a conversion of convertible notes and the Preferred C Shares to the extent that, as a result of such conversion,
such Investor would beneficially own more than 4.99% of the number of shares of Common Stock outstanding immediately after giving
effect to the issuance of shares of Common Stock upon conversion of the Preferred C Shares, which beneficial ownership limitation
may be increased by the holder up to, but not exceeding, 9.99%.
The Company has determined
that the conversion feature embedded in the notes constitutes a derivative and has been bifurcated from the note and recorded as
a derivative liability, with a corresponding discount recorded to the associated debt, on the accompanying balance sheet, and revalued
to fair market value at each reporting period.
The following table
summarizes the convertible notes movement:
Balance at June 30, 2015
|
|
$
|
—
|
|
Convertible notes issued
|
|
|
673,750
|
|
Convertible notes converted
|
|
|
—
|
|
Total
|
|
|
673,750
|
|
Less: debt discount
|
|
|
(301,847)
|
|
Balance at March 31, 2016
|
|
$
|
371,903
|
|
MEDICAL ALARM
CONCEPTS HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
9.
|
WARRANTS AND DERIVATIVE LIABILITIES
|
On March 1, 2016
and March 3, 2016, pursuant to two subscription agreements (see note 8), the Company issued warrants to two investors to
purchase 6,805,561 shares of Series C Convertible Preferred Stock at $0.09 per share. On March 1, 2016, one investor paid
$12,500 to exercise warrants and purchased 138,889 shares of Series C Convertible Preferred Stock at $0.09 per share.
The Company has evaluated
the application of ASC 815 Derivatives and Hedging and ASC 815-40-25 to the warrants to purchase Series C Convertible Preferred
Stock issued with the Convertible Notes. 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 “Change in fair value of derivative instrument” These
derivative instruments are not designated as hedging instruments under ASC 815 and are disclosed on the balance sheet under Derivative
Liabilities.
The fair value of
the warrants underlying the convertible 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 convertible notes payable and was charged to operations
as interest expense in accordance with effective interest method within the period of the convertible notes.
Significant assumptions
used in calculating fair value of warrants and conversion feature of convertible notes at issuance date are as follows.
Expected
dividend
|
|
Expected
volatility
|
|
Risk-free
Rate of
interest
|
|
Expected
term
(year)
|
|
Exercise
price
|
|
Common stock price per shares
|
0.00%
|
|
382.27%
|
|
0.12%
|
|
As set forth by each convertible note and warrant
|
|
$ 0.01
|
|
0.17
|
Significant assumptions
used in calculating fair value of outstanding warrants at March 31, 2016 are as follows.
Expected
dividend
|
|
Expected
volatility
|
|
Risk-free
Rate of
interest
|
|
Expected
term
(year)
|
|
Exercise
price
|
|
Common stock price per shares
|
0.00%
|
|
397.02%
|
|
0.12%
|
|
As set forth by each convertible note and warrant
|
|
$ 0.01
|
|
0.10
|
The following table
provides a summary of the changes in fair value of derivative liabilities measured at fair value on a recurring basis using significant
unobservable inputs (level 3):
Balance – June 30, 2015
|
|
$
|
—
|
|
Issuances
|
|
|
265,676
|
|
Warrants exercised
|
|
|
(66,784
|
)
|
Changes in fair value included in earnings
|
|
|
(82,057
|
)
|
Balance – March 31, 2016
|
|
$
|
116,835
|
|
MEDICAL ALARM
CONCEPTS HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 owners 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 the quoted market price at the date of grant.
On January 13, 2015,
the Company issued 280,000 shares of common stock to an unrelated individual for $20,000.
The reconciliation
of income tax benefit at the U.S. statutory rate of 34% for the six months ended March 31, 2016 and 2014 to the Company’s
effective tax rate is as follows:
|
|
Nine months ended March 31,
|
|
|
2016
|
|
2015
|
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:
|
|
Nine months ended March 31,
|
|
|
2016
|
|
2015
|
Federal:
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
—
|
|
|
$
|
—
|
|
Deferred
|
|
|
(148,116
|
)
|
|
|
(125,900
|
)
|
State and local:
|
|
|
|
|
|
|
|
|
Current
|
|
|
—
|
|
|
|
—
|
|
Deferred
|
|
|
(43,520
|
)
|
|
|
(36,992
|
)
|
Change in valuation allowance
|
|
|
191,636
|
|
|
|
162,892
|
|
Income tax provision (benefit)
|
|
$
|
—
|
|
|
$
|
—
|
|
As of March 31, 2016,
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 TO CONSOLIDATED 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 nine months ended March 31
, 2016
and 2015,
respectively.
Certificate of Amendment
On May 3, 2016, the Company filed a Certificate
of Amendment (the “Amendment”) to its Articles of Incorporation, as amended, to increase the total number of shares
of authorized capital stock to 410,000,000 shares consisting of (i) 400,000,000 shares of Common Stock and (ii) 10,000,000 shares
of Preferred Stock with such rights and preferences as determined by the Company’s Board of Directors. The Amendment was
approved by written consent of the Company’s shareholder holding a majority of the Company’s voting capital stock on
March 15, 2016.
Private Placement
On April 21, 2016
(the “Closing Date”), the Company closed the sale of one unit for $400,000 (the “Unit”), pursuant to a
subscription agreement (the “Subscription Agreement”) with an accredited investor (the “Investor”). The
Unit consisted of (i) 400,000 shares of Series D Preferred Stock, par value $0.0001 per share (the “Preferred D Shares”).
Each of the Preferred D Shares are convertible into 100 shares of the Company’s common stock, par value $0.0001 per share;
and (ii) one warrant (the “Warrant”) to purchase 40,000,000 shares of Common Stock, $0.001 par value per share, at
an exercise price of $0.01 per share, subject to adjustment, and expires three years from the date of issuance.
The Company is prohibited
from effecting a conversion of the Preferred D Shares to the extent that, as a result of such conversion, such Investor would beneficially
own more than 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of shares
of Common Stock upon conversion of the Preferred D Shares, which beneficial ownership limitation may be increased by the holder
up to, but not exceeding, 9.99%.
Common Stock Issuance
In May 2016, the
Board of Directors approved to issue 37,500,000 shares of company’s common stock to the Company’s directors,
employees and consultants.