NOTES TO FINANCIAL STATEMENTS
February 29, 2016 and August 31, 2015
(Unaudited)
1. OVERVIEW
Description of Business
Event Cardio Group Inc. ("the Company")
was incorporated under the name Sunrise Holdings Limited on October 26, 2005 under the laws of Nevada and changed its name to
Event Cardio Group Inc. on November 7, 2014. The Company is developing a cardiac monitoring device based on a wireless and leadless
advanced cardiac monitor. Upon completion of the development the device will collect medical data and transmit it to physicians
for diagnostic evaluation. The Company also has a license agreement to distribute a patented product in the use of breast disease
detection.
On September 8, 2014, the Company entered
into a share exchange agreement with 2340960 Ontario Inc.'s shareholders whereby the Company acquired all of the issued and outstanding
common shares of 2340960 Ontario Inc. in exchange for 79,500,000 common shares of the Company. Upon completion of this transaction,
the shareholders of 2340960 Ontario Inc. held approximately 93.6% of voting control of the Company. This transaction, has been
accounted for as a reverse merger with 2340960 Ontario Inc. being the accounting acquirer and the Company being the acquiree.
In connection with this transaction, the Company changed its fiscal year end from September 30th to August 31st.
Going Concern
The accompanying financial statements
have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the
normal course of business. The Company has not generated any revenue since inception, has incurred losses, and has an accumulated
deficit of $4,267,128 as of February 29, 2016. These factors among others raise substantial doubt about the ability of the Company
to continue as a going concern.
The continuation of the Company
as a going concern is dependent upon financial support from its stockholders, the ability of the Company to obtain necessary equity
financing to continue operations, successfully locating and negotiating with other business entities for potential acquisitions
and/or acquiring new clients to generate revenues. There is no assurance that the Company will ever be profitable. These financial
statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets
or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.
Basis of Presentation
These financial statements include the accounts
of the Company and its wholly owned subsidiaries 2340960 Ontario Inc. and EFIL Sub of ECG Inc. All inter-company accounts
and transactions have been eliminated.
The unaudited consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for interim financial statements and with the instructions
to Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”).
Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United
States of America for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited
consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present
the financial position of the Company as of February 29, 2016 and the results of operations and cash flows for the periods
presented. The results of operations for the three months and six months ended February 29, 2016 are not necessarily indicative
of the operating results for the full fiscal year or any future period. These consolidated financial statements should be read
in conjunction with the consolidated financial statements and related notes thereto included in the form 10-K filed with the
SEC on December 14, 2015.
EVENT CARDIO GROUP INC.
NOTES TO FINANCIAL STATEMENTS
February 29, 2016 and August 31, 2015
(Unaudited)
1. OVERVIEW (continued)
The Company has elected to adopt early application
of Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting
Requirements and does not present or disclose inception-to-date information and other remaining disclosure requirements
of Topic 915.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
In preparing these financial statements
in conformity with GAAP, management is required to make estimates and assumptions that may affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported
amount of revenues and expenses during the reporting years. Actual results could differ from those estimates.
Fair Value Measurements
ASC 820, “
Fair Value Measurements
”,
requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to
measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level
of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used
to measure fair value: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities;
Level 2, inputs other than level one that are either directly or indirectly observable such as quoted prices for identical or
similar assets or liabilities on markets that are not active; and Level 3, defined as unobservable inputs in which little or no
market data exists, therefore requiring an entity to develop its own assumptions. The Company had no assets or liabilities required
to be recorded at fair value on a recurring basis as of February 29, 2016 or August 31, 2015.
The estimated fair value of certain financial
instruments, including cash and cash equivalents, and accounts payable are carried at historical cost basis, which approximates
their fair values because of the short-term nature of these instruments. The carrying amounts of our short and long term credit
obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates
taken together with other features are comparable to rates of returns for instruments of similar credit risk.
Share Based Compensation
The Company applies ASC 718 Share-Based
Compensation and ASC 505 Equity to account for service provider share-based payments. In accordance with ASC 718 and ASC 505,
the Company determines whether a share based payment should be classified and accounted for as a liability award or equity award.
All grants of share-based payments to service providers are classified as equity awards and are recognized in the financial
statements over the period in which the services are received based on the fair value determined as of the measurement date. Included
in prepaid expenses on the accompanying balance sheet at February 29, 2016 and August 31, 2015 is the unamortized portion of share
based payments for services to be rendered of $612,227 and $791,962 respectively.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit
risk consist principally of cash and cash equivalents. The Company places its cash with high quality banking institutions.
EVENT CARDIO GROUP INC.
NOTES TO FINANCIAL STATEMENTS
February 29, 2016 and August 31, 2015
(Unaudited)
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
Income Taxes
Under ASC 740, "Income Taxes", deferred
tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Valuation allowances are established when it is more likely than not that some or all of
the deferred tax assets will not be realized.
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, the Company has
established a full valuation allowance against all of the deferred tax assets for every period because it is more likely than
not that all of the deferred tax assets will not be realized.
The Company files income tax returns in Canada
and the United States with varying statutes of limitations. The Company's policy is to recognize interest expense and penalties
related to income tax matters as a component of our provision for income taxes.
Foreign Currency Translation
The Company's reporting and functional currency
is the U.S. dollar. The Company's Canadian operation's functional currency is the Canadian dollar. The Company's U.S. subsidiary's
functional currency is the U.S. dollar.
Transactions originating in Canadian dollars
are translated to the functional currency of the US dollar as follows: using period end rates of exchange for assets and liabilities,
average rates of exchange for the period of transactions for revenues and expenses and historical rates for equity.
The financial statements of the Company's
Canadian operations are translated from the functional currency of the Canadian dollar into the reporting currency of the United
States dollar in accordance with ASC 830, Foreign Currency Matters, using period end rates of exchange for assets and liabilities,
average rates of exchange for the period for revenues and expenses and historical rates for equity.
Translation adjustments resulting from the process of translating the functional currency
of Canadian dollar Canadian operation's financial statements into the reporting currency of U.S. dollar financial statements are
included in determining comprehensive income. As of February 29, 2016 and August 31, 2015, the cumulative translation adjustment
of $475,219 and $103,432 respectively was classified as accumulated other comprehensive income in the stockholders' deficit section
of the balance sheet. For the periods ended February 29, 2016 and February 28, 2015, the foreign currency translation adjustment
to accumulated other comprehensive income was $371,787 and $92,677 respectively.
EVENT CARDIO GROUP INC.
NOTES TO FINANCIAL STATEMENTS
February 29, 2016 and August 31, 2015
(Unaudited)
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
Comprehensive Loss
Comprehensive loss is defined to include all
changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, Accounting
Standards Codification (ASC) 200, Comprehensive Income, requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same
prominence as other financial statements. For the year presented, the Company's comprehensive loss includes net loss and foreign
currency translation adjustments and is presented in the statement of comprehensive loss.
Investments in non-consolidated subsidiaries
Investments in non-consolidated entities are accounted for using the equity method or
cost basis depending upon the level of ownership and/or the Company's ability to exercise significant influence over the operating
and financial policies of the investee. When the equity method is used, investments are recorded at original cost and adjusted
periodically to recognize the Company's proportionate share of the investees' net income or losses after the date of investment.
When net losses from an investment accounted for under the equity method exceed its carrying amount, the investment balance is
reduced to zero and additional losses are not provided for. The Company resumes accounting for the investment under the equity
method if the entity subsequently reports net income and the Company's share of that net income exceeds the share of net losses
not recognized during the period the equity method was suspended. Investments are written down only when there is clear evidence
that a decline in value that is other than temporary has occurred.
Research and Development Expenses
All research and development costs are expensed as incurred.
Convertible Instruments
The Company evaluates and accounts for conversion options embedded in convertible instruments
in accordance with ASC 815 “Derivatives and Hedging Activities”. Applicable GAAP requires companies to bifurcate conversion
options from their host instruments and account for them as free standing derivative financial instruments according to certain
criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative
instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid
instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under
other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms
as the embedded derivative instrument would be considered a derivative instrument.
EVENT CARDIO GROUP INC.
NOTES TO FINANCIAL STATEMENTS
February 29, 2016 and August 31, 2015
(Unaudited)
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
The Company accounts for convertible instruments (when we have determined that the embedded
conversion options should not be bifurcated from their host instruments) as follows: To record when necessary, discounts to convertible
notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value
of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the
note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.
New Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
(ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. generally accepted accounting
principles (GAAP). The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of
promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled
in exchange for those goods or services. Additionally, the guidance requires improved disclosures to help users of financial statements
better understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
In August 2015, the FASB issued ASU 2015-14
Revenue from Contracts with
Customers Deferral of the Effective Date,
which defers the effective date of the new revenue recognition standard by one year, as a result, public entities would apply
the new revenue standard to annual reporting periods beginning after December 15, 2017 and interim periods therein, which is the
Company's first quarter of fiscal 2019. Early adoption is permitted for all entities only as of annual reporting periods beginning
after December 15, 2016, including interim reporting periods within that reporting period. The guidance allows for the amendment
to be applied either retrospectively to each prior reporting period presented or retrospectively as a cumulative-effect adjustment
as of the date of adoption. The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.
In February 2015, the FASB issued ASU 2015-02,
Amendments to the Consolidation Analysis
(ASU 2015-02). ASU 2015-02 affects reporting entities that are required
to evaluate whether they should consolidate certain legal entities. ASU 2015-02 modifies the evaluation of whether limited
partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities, eliminates the presumption
that a general partner should consolidate a limited partnership and affects the consolidation analysis of reporting entities that
are involved with VIEs, particularly those that have fee arrangements and related party relationships. ASU 2015-02 is effective
for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted.
A reporting entity may apply the amendments in this guidance using a modified retrospective approach by recording a cumulative-effect
adjustment to equity as of the beginning of the fiscal year of adoption. A reporting entity also may apply the amendments retrospectively.
The adoption of ASU 2015-02 in the first quarter of fiscal 2017 is not expected to have a material impact on the Company’s
financial condition or results of operations.
In June 2014, the FASB issued ASU 2014-12,
Accounting for Share-Based Payments
When the Terms of
an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period
(ASU
2014-12), which requires that a performance target that affects vesting and that could be achieved after the requisite service
period be treated as a performance condition. ASU 2014-12 is effective for annual periods and interim periods within those
annual periods beginning after December 15, 2015. Early adoption is permitted. The adoption of ASU 2014-12 in the first quarter
of fiscal 2017 is not expected to have a material impact on the Company's financial condition or results of operations.
EVENT CARDIO GROUP INC.
NOTES TO FINANCIAL STATEMENTS
February 29, 2016 and August 31, 2015
(Unaudited)
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
In August 2014, the FASB issued Accounting
Standards Update 2014–15 (“ASU 2014-15), “
Presentation of Financial Statements – Going Concern
(Subtopic 205 – 40): Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern
.”
ASU 2014-15 requires management to evaluate whether there are conditions or events that raise substantial doubt about the
entity’s ability to continue as a going concern, and to provide certain disclosures when it is probable that the entity
will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued.
Since this guidance is primarily around certain disclosures to the financial statements, we anticipate no impact on our financial
position or results of operations from adopting this standard. We are currently assessing the additional disclosure requirements,
if any, of ASU 2014-15. ASU 2014-15 is effective for the annual period ended December 31, 2016 and for annual periods
and interim periods thereafter with early adoption permitted.
3. INVESTMENT IN MEDPAC ASIA PACIFIC UNIT TRUST
The Company, in exchange for 4,000,000 common shares, valued at $200,000, acquired, on December 16, 2015,
200,000 trust units of Medpac Asia Pacific Unit Trust representing approximately 32.86% of the entity's voting units and thus has
significant influence over the entity. As such, it is accounted for using the equity method. The company's proportionate share
of the entity's income is adjusted for any inter-entity transactions between the company and the entity, which in this case would
be interest on the convertible note payable described in Note 5.
4. DUE TO RELATED PARTIES
The amounts due to related parties are non-interest bearing, with no fixed terms
of repayment, are payable on demand and are unsecured. As of February 29, 2016 and August 31, 2015, the amounts of due to related
parties are $40,827 and $55,864 respectively.
5. CONVERTIBLE NOTES PAYABLE - RELATED
PARTIES
The company offered, pursuant to a Regulation
S Subscription Agreement and Investment Representation dated February 3, 2015, up to $2,000,000 of 8% convertible notes with interest
payable annually on January 31st. The holder upon written notice to the company may elect to have accrued but unpaid interest
added to the principal amount of the note in lieu of payment of interest. The principal amount of the note is payable on January
31, 2018. The note, or any part thereof and any unpaid interest is convertible into common shares of the company at any time at
the option of the holder at a conversion price of $0.15 per common share. The note may be prepaid at any time in full by the company
upon ten days notice to the holder. As at February 29, 2016, $525,000 of the convertible notes payable have been issued as follows.
Medpac Asia Pacific Unit Trust ("Medpac")
for $500,000. In addition to the terms of the convertible note payable described above, if the note is prepaid by the company
at any time prior to the maturity date, if the volume weighted average price of the common shares of the company for the ten trading
days preceding the early repayment date is less than $0.15 per common share, then Medpac shall receive a number of common share
purchase warrants sufficient to purchase up to 1% of the then outstanding number of common shares of the Company. Such common
share purchase warrants once issued would be exercisable for a period of three years at an exercise price of $0.15 per common
share, but may be exercised on a cashless basis in accordance with a specified formula.
Medpac also received, for its services as part of the transaction noted above, a convertible
note payable of $25,000 having terms and conditions identical to Medpac's other convertible note payable described above, except
that the number of common share purchase warrants potentially issuable upon early payment of the note would be sufficient to only
purchase up to 0.0005% of the then outstanding common shares of the company.
EVENT CARDIO GROUP INC.
NOTES TO FINANCIAL STATEMENTS
February 29, 2016 and August 31, 2015
(Unaudited)
5. CONVERTIBLE NOTES
PAYABLE - RELATED PARTIES
(continued)
At the time of Medpac's investment noted above,
the Company agreed to enter into an exclusive Distribution Agreement with Medpac for the Company's
BreastCare DTS™
and Now Cardio devices in Australia, New Zealand, Singapore, Thailand, Malaysia, Indonesia, Philippines, Vietnam, Laos, Cambodia,
Myanmar and Bangladesh. The Distribution Agreement will have an initial term of five years and can be renewed for an additional
five years provided that agreed upon sales targets are met. If the company does not establish a manufacturing facility for its
BreastCare DTS™
device in Southeast Asia within eighteen months of this agreement, Medpac and the company will form
a joint venture to establish such a facility in the Philippines.
As at February 29, 2016 and August 31, 2015, the Company has a convertible promissory
note outstanding to 2399371 Ontario Inc., a company owned by an affiliate, for $960,300 Canadian ($710,123 US$) and $nil Canadian
($nil US$), respectively. The note bears interest at 12% per annum with principal and interest both payable on the maturity date
of January 31, 2018. The principal amount of the note together with any accrued interest is convertible into shares of the common
stock of the Company at a conversion price of $0.0873 Canadian. The note is secured by the common shares of 2340960 Ontario Inc.
and a lien on all of the company's assets.
This note was issued on February 10, 2016,
in satisfaction of the following other notes payable - related parties, accrued interest and financing fees: a promissory note
to 2399371 Ontario Inc., a company owned by an affiliate, for $583,000 Canadian ($419,424 US$) plus accrued interest on such note
of $110,770 Canadian ($79,691 US$); a promissory note to 2399371 Ontario Inc., a company owned by an affiliate, for $64,500 Canadian
($48,496 US$) plus accrued interest on such note of $4,515 Canadian ($3,339 US$); a promissory note to 2399371 Ontario Inc., a
company owned by an affiliate, for $91,499 Canadian ($65,827 US$), which was issued December 18, 2015 in satisfaction of a promissory
note to 9058583 Canada Inc., a company owned by an affiliate, plus accrued interest on such note of $2,346 Canadian ($1,735 US$);
a promissory note to 2399371 Ontario Inc., a company owned by an affiliate, for $75,000 Canadian issued December 18, 2015 ($54,030
US$) plus accrued interest on such note of $1,923 Canadian ($1,422 US$); plus financing fees of $26,746 Canadian (19,242 US$).
Commitments to issue 600,000 common shares valued at $43,200 and 600,000 common share purchase warrants valued at $42,750 related
to the above extinguished notes payable - related parties have been cancelled.
Accrued interest on convertible notes
payable - related parties as at February 29, 2016 and August 31, 2015 was $35,000 and $14,000 respectively and is included
in accounts payable.
6. STOCKHOLDERS' DEFICIT
Common Shares and Common Share Purchase
Warrant Issuance
On September 28, 2015, the Company
issued 4,100,000 common shares for proceeds of $205,000. In conjunction with this common share offering the company also issued
520,000 common shares in respect of finders fees.
On September 28, 2015, the Company
issued 1,250,000 common shares in exchange for a service agreement for a fair value of $137,500.
On November 3, 2015, the Company issued
750,000 common shares in exchange for a service agreement for a fair value of $75,000.
On November 3, 2015, the Company issued
125,000 common shares in exchange for a service agreement for a fair value of $12,500.
On January 16, 2016, the Company issued 4,000,000 common shares in exchange for the
investment in Medpac Asia Pacific Unit Trust for a fair value of $200,000.
EVENT CARDIO GROUP INC.
NOTES TO FINANCIAL STATEMENTS
February 29, 2016 and August 31, 2015
(Unaudited)
6. STOCKHOLDERS'
DEFICIT(continued)
On February 8, 2016, the Company cancelled 750,000 common shares with a par value of
$750 and additional paid in capital amount of $16,280, that were issued on September 28, 2015 due to default under the service
agreement.
Common Share Purchase Warrants
On February 12, 2016, the Company issued 13,750,000 common share purchase warrants for
research and development, compensation and consulting services with a fair value of $271,176.
As of February 29, 2016 there are 20,050,000
common share purchase warrants issued and outstanding. 2,200,000 common share purchase warrants allow the holder to purchase 1
common share of the company at an exercise price of $0.10 per warrant up to the expiration date of August 27, 2019. 4,100,000
common share purchase warrants allow the holder to purchase 1 common share of the company at an exercise price of $0.10 per warrant
up to the expiration date of September 28, 2019. 2,000,000 common share purchase warrants allow the holder to purchase 1 share
of the company at an exercise price of $0.03 per warrant up to the expiration date of February 28, 2019. 11,750,000 common share
purchase warrants allow the holder to purchase 1 share of the company at an exercise price of $0.01 per warrant up to the expiration
date of February 28, 2019.
Equity Instruments to be Issued
The company has received $56,451 related to
subscriptions for 1,050,000 common shares to be issued in the future.
The company has received $335,000 Canadian
($238,693 US) related to subscriptions on the commitment to issue common shares and common share purchase warrants noted below.
Commitment to Issue Common Shares and Common
Share Purchase Warrants
On February 17, 2016, the company entered
into subscription agreements with ten individuals for an aggregate proceeds of $1,500,000 Canadian ($1,082,251 US) to issue an
aggregate of 16,901,400 common shares and 10,000,000 common share purchase warrants, exerciseable at $0.15 per common share up
to February 28, 2019. It is anticipated that issuances under the subscription agreements will be as follows:
|
Date
|
|
Amount (Cdn $)
|
|
Number of Common Shares to be issued
|
|
Number of Common Share Purchase Warrants to be issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upon acceptance of subscription
|
|
$
|
335,000
|
|
|
|
3,774,810
|
|
|
|
2,233,000
|
|
|
March 1, 2016
|
|
|
325,000
|
|
|
|
3,661,570
|
|
|
|
2,166,000
|
|
|
April 1, 2016
|
|
|
230,000
|
|
|
|
2,591,710
|
|
|
|
1,533,000
|
|
|
May 1, 2016
|
|
|
160,000
|
|
|
|
1,802,410
|
|
|
|
1,066,000
|
|
|
June 1, 2016
|
|
|
165,000
|
|
|
|
1,859,880
|
|
|
|
1,100,000
|
|
|
July 1, 2016
|
|
|
155,000
|
|
|
|
1,746,640
|
|
|
|
1,033,000
|
|
|
August 1, 2016
|
|
|
130,000
|
|
|
|
1,464,380
|
|
|
|
869,000
|
|
|
|
|
$
|
1,500,000
|
|
|
|
16,901,400
|
|
|
|
10,000,000
|
|
EVENT CARDIO GROUP INC.
NOTES TO FINANCIAL STATEMENTS
February 29, 2016 and August 31, 2015
(Unaudited)
6. STOCKHOLDERS'
DEFICIT(continued)
Equity Incentive Plan
The Company has created the Event Cardio Group
Inc. 2015 Equity Incentive Plan ("equity incentive plan") which allows for the
granting of incentive stock options
to employees of the company, a parent or a subsidiary and the granting of awards other than incentive stock options to employees,
directors and consultants. The maximum number of common shares which may be issued pursuant to the equity incentive plan at February
29, 2016 is 10,000,000. No incentive stock options have been granted as of February 29, 2016. A total of 2,750,000 common shares
have been issued as of February 29, 2016 under this plan to a consultant.
7. RELATED PARTY
The Company is related to Contex International
Technologies (Canada) Inc. ("Contex") through the fact that affiliates of the Company hold a 34% interest in 2419596
Ontario Inc, which owns Contex.
The Company has entered into a service
agreement with Contex, whereby Contex will provide services related to the design and development of a wireless and leadless ECG
cardiac monitor. The agreement runs for a term of one year to May 22, 2016 and will automatically renew for subsequent terms of
one year unless notice of termination is given by either party in writing.
For the six months ended February
29, 2016 and February 28, 2015 $284,176 and $138,229 respectively, have been incurred related to this agreement and have been
expensed in research and development expense.
See Note 4 regarding convertible notes
payable - related parties.
The company is party to an employment agreement
running from February 1, 2016 to January 31, 2018 with the CEO for $100,000 per year up to January 31, 2017, at which time the
board will determine the annual salary for the second year. In addition, the CEO will be entitled to receive a bonus of $225,000
when the company achieves profitable operations. If the company is sold before the bonus has been paid in full, the CEO will be
paid such amount out of the proceeds of the sale or cash on hand in the event of a stock sale. This employment agreement supercedes
and replaces all obligations of the company under a previous employment agreement, dated August 27, 2015, with the CEO, whereby
the CEO was to have earned a salary of $225,000 per year up to August 31, 2018 and was to have been paid $125,000 for past services.
The Company is related to the Chief Executive
Officer ("CEO"), who is also the company's president and sole board member. For the six months ended February 29, 2016
and February 28, 2015, $8,333 and $nil respectively, have been expensed related to compensation to the CEO and included in general
and administrative expense. Included in accounts payable at February 29, 2016 and August 31, 2015 is $nil and $nil respectively
related to this employment agreement.
8. COMMITMENTS
On October 24, 2014, the Company entered into a License Agreement with Life Medical
Technologies, Inc. ('Life Medical") with respect to Life Medical’s “
BreastCare DTS™
” product
and certain other technologies. The License Agreement grants the Company the exclusive right to distribute the
BreastCare DTS™
in the United States, Canada and certain countries in Asia, including China. The Agreement calls for royalties of 5% on net
sales, as defined in the License Agreement, and requires minimum annual royalties of $100,000 in 2015 and $200,000 each year thereafter.
EVENT CARDIO GROUP INC.
NOTES TO FINANCIAL STATEMENTS
February 29, 2016 and August 31, 2015
(Unaudited)
8. COMMITMENTS(continued)
As part of entering into the License Agreement,
the Company has made prepayments of the royalties commitment noted above and such are included in prepaid expenses on the accompanying
balance sheet at February 29, 2016. For the six months ended February 29, 2016, and February 28, 2016 $25,000 and $nil respectively
of the above noted prepayment has been expensed. The recipients of 526,315 shares related to prepaid royalties were also to be
paid in cash or shares of common stock, at the company's option, an amount equal to the excess, if any, of $70,000 over the value
of such shares as of December 12, 2015. This amount has not yet been paid given the disagreement as disclosed in Note 8.
The Company is party to a Sublicense
agreement with 9508583 Canada Inc. with respect to the exclusive rights to distribute the
BreastCare DTS™
product
in Canada with royalties payable at the rate of 5.5% of net sales, as to be defined in the Sublicense Agreement, to the Company.
9. CONTINGENCIES
On November 30, 2015, the company's subsidiary
EFIL Sub of ECG Inc. received a breach of contract notice related to its license agreement with Life Medical as described in Note
7. Life Medical contends that the company has defaulted under the provisions of this agreement and have thus triggered penalty
clauses in the agreement. Life Medical is now demanding payment of these penalties. As per the breach of contract notice details,
it is estimated that the total penalty could be as high as $770,000 based on the formula: $1 per every 100 people in each designated
country, up to a maximum of $150,000 per designated country, with a total of seven countries identified in the notice. In addition
due to this breach, Life Medical also contends that the license rights to the seven countries identified now belongs exclusively
to Life Medical. It is management's contention that the company has not defaulted under the provisions of the agreement and thus
is not required to pay any such penalties, nor have the licensing rights reverted back to Life Medical in the seven countries
identified. The outcome of this contingency is not determinable at this time.
10. SUBSEQUENT EVENTS
On March 15, 2016, the Company entered into
an IT service agreement, that expires November 15, 2016, in exchange for 250,000 common shares of the company, valued at $7,250.
On March 25, 2016 the Company announced that
it was amending its articles of incorporation for authorization to issue 300,000,000 common shares and 10,000,000 blank check
preferred shares undesignated as to series.