UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended June 30, 2015
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period from ______ to ______
Commission file number 333-153290
MEDICAL ALARM CONCEPTS HOLDING, INC.
(Exact name of registrant as specified in its
charter)
Nevada |
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26-3534190 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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200
W. Church Road |
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Suite B |
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King
of Prussia , PA 19406 |
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(Address of principal executive offices) |
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(877)
639-2929 |
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(Registrant’s telephone number, including area code) |
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Securities registered
pursuant to |
Securities
registered pursuant to |
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Section
12(g) of the Act: |
Section
12(b) of the Act:
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(Title
of Each Class) |
None
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None |
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes ☐ No
☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.
Yes ☒ No
☐
Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐ No
☒
Indicate
by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K (§ 229.405 of this chapter)
is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ |
Accelerated filer |
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Non-accelerated filer | ☐ |
Smaller reporting company |
☒ |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of voting and non-voting
common stock held by non-affiliates of the registrant, based upon the closing bid quotation for the registrant’s common stock,
as reported on the OTC Bulletin Board quotation service, as of December 31, 2014, the last business day of the registrant’s
most recently completed second fiscal quarter, was approximately $792,520.
As of December 18, 2015, the
registrant had 7,598,676 shares of common stock issued and outstanding,
respectively.
Annual Report on Form 10-K |
For the Fiscal
Year Ended June 30, 2015 |
INDEX |
TABLE OF CONTENTS
Part I
Special Note Regarding Forward-Looking Statements
On one or more occasions, we may make forward-looking
statements in this Annual Report on Form 10-K regarding our assumptions, projections, expectations, targets, intentions or beliefs
about future events. Words or phrases such as “anticipates,” “may,” “will,” “should,”
“believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,”
“projects,” “targets,” “will likely result,” “will continue” or similar expressions
identify forward-looking statements. These forward-looking statements are only our predictions and involve numerous
assumptions, risks and uncertainties, including, but not limited to those listed below and those business risks and factors described
elsewhere in this report and our other Securities and Exchange Commission filings.
We undertake no obligation to publicly update
or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention
is directed to any further disclosures made on related subjects in our subsequent annual and periodic reports filed with the Securities
and Exchange Commission on Forms 10-K, 10-Q and 8-K and Proxy Statements on Schedule 14A.
References herein to “we,” “us,”
“our” or “the Company” refer to Medical Alarm Concepts Holding, Inc. and its subsidiaries.
General
Medical Alarm Concepts Holding, Inc. (the “Company”
or “Medical Alarm”) was formed in June 2008 and, on June 24, 2008 we acquired 100% of the membership interests in Medical
Alarm Concepts, LLC, a Delaware limited liability corporation.
Overview
Our principal executive offices are located
at 200 West Church Road, Suite B, King of Prussia, PA 19406, and our telephone number is (877) 639-2929. Our website
addresses’ are www.medipendant.com, www.ihelpalarm.com and www.medicalalarmconcepts.com.
The Company manufactures medical alarm
devices that are used to summon help in the event of an emergency. While these devices are primarily designed for the elderly,
there is also a market for those who are physically disabled, as well as for persons living alone.
The Company was organized in mid-2008. The
operation was financed with a considerable amount of toxic convertible debt. This type of financing, along with several other issues,
prevented the Company from realizing a robust growth rate for its first few years of operation. Since that time, considerable management
time has been spent and investor money utilized to turn the Company's operation around.
The Company's flagship product is called the
MediPendant®, which is a personal emergency alarm that is used to summon help in the event of an emergency at home.
Since approximately 60% of all medical alarms currently being sold in the United States right now, are first-generation technologies
that require the user to speak and listen through a central base station unit, the MediPendant™ has found success by offering
a product that has the speaker in the pendant, enabling the user to simply speak and listen directly through the pendant in the
event of an emergency.
The MediPendant® is designed to be worn
in the bath or shower and offers a 600-foot range, so that the wearer can operate the unit from virtually anywhere within their
home or on their property. The product is extremely durable, very reliable, and offers an extremely long battery life. The MediPendant®
has voice prompts that alert the user of the operational status of the device. This gives the user some peace of mind during an
emergency because they know with certainty that their distress signal has been activated and help is being summoned.
The Company also manufactures the iHelp™
mobile medical alarm device. The iHelp™ is a next-generation medical alarm that utilizes T-Mobile’s 2G network. Users
of the iHelp™ mobile medical alarm can take the device with them wherever there is cellular service. There is no base station
and only requires a cellular signal in order to work.
The company has invested time,
manpower, and money into the development of this product. On September 30, 2014, the company signed an
agreement for a $300,000 line of credit to enable it to launch the iHelp™, and to build the infrastructure that allowed
the Company to buy and track air time from T-Mobile for cellular operation of this unit. The credit line was increased to
$500,000 in January 2015. The iHelp™ has enhanced features and functions including an advanced GPS system, the ability
to remotely locate a loved one, and a dealer portal that enables dealers to manage their own iHelp™ customer base. A
significant amount of time was spent on the backend systems, including the dealer portal. iHelp™ dealers have
significant benefits, most importantly the ease of use in ordering product, activating and deactivating customers, tracking
their customer usage, and creating and printing a variety of reports to assist in billing and collecting revenues. The
iHelp™ dealer program is a turn-key program that offers the dealer the opportunity to provide his/her customers with
the latest products without having to change his/her own backend.
The Company is in the process of implementing
a new product called the iHelp+™ (iHelp plus 3G). iHelp+™ is a cellular medical alert system that operates on a 3G
network. Initially, it will be operating on the AT&T network (GSM - Global), and within a few months it will also be able to
operate on the Verizon (CDMA - USA) network as well. It is Bluetooth and Wi-Fi enabled. It has a much broader reach than the iHelp™,
as well as additional functions, such as fall detection and geo-fencing (ability to pre-set an area and alert loved ones if the
user leaves or enters the pre-set area).
Additionally, the iHelp+™ will be used
as the communication device for a wellness bracelet and other Bluetooth-enabled devices used for collecting vital sign data and
storing the data in any requested manner in encrypted HIPAA-compliant cloud servers for access by proper parties.
New Product Development
The design and development of wearable ‘biosensor’
devices, such as the iHelp+™ for health and wellness, has garnered much attention in the public and healthcare community
during the last few years. This is primarily motivated by increasing healthcare costs and propelled by recent technology advances
in miniature bio-sensing devices, micro-computing technology, and wireless communications. The advance of wearable sensor-based
systems will potentially transform the future of “telehealth”, personal emergency response (PERS, mPERS) and remote
monitoring, by enabling ubiquitous, convenient-to-use, cost-effective and proactive personal health management with real and near
real-time monitoring and archiving of personal safety, health, and environmental conditions.
Beyond the recent emergence of smart mobile
wireless and geographic location solutions, these systems will integrate via Bluetooth low energy 4.0 and other technologies with
FDA approved medical devices and biosensors. The Company will be able to collect data on vital signs, send this data to HIPAA compliant
servers in the cloud, and allow access by caregivers, nurses, doctors, hospitals, and other health organizations. This process
can facilitate low-monthly-cost wearable solutions for the implementation of monitoring of users, all day and anywhere, for emergency,
health, and activity status changes. This evolution will change the face of the traditional PERS device into a WHAM (Wearable
Health & Alarm Monitoring) market.
Market Background
Living arrangements have changed greatly in
the United States among older people and other potentially vulnerable segments of the population, including those with physical
disabilities and/or medical conditions. During the 20th century, one of the most dramatic changes in the lives of the aging in
the United States was the rise of the number of aging people living at home alone. In 1910, for example, only 12% of widows age
65 or older lived alone. In 1970, this figure was 70% and today it is estimated to be impressively higher.
In the 21st century, this trend has gained
momentum and become stronger than ever, with more of the aging and medically at risk population living alone at present than at
any other time in the past, especially with the rise of the aging Baby Boomer population. The Baby Boomers, those born between
1946 and 1964, started turning 65 years old in 2011, with the number of older people set to increase dramatically during the 2010
to 2030 time period. According to a 2009 analysis of U.S. Current Population Survey data, “between 2010 and 2030, the number
of people age 65 and older is projected to grow by 31.7 million or 79.2%.” Thus, the older population in 2030 is projected
to be twice as large as in 2000, growing from 35 million to 71.5 million, representing 20% of the total U.S. population around
the year 2030.
This social dynamic of a rising older population
is true in both the United States as well as in many developed nations worldwide. Likewise, social change, technological advancements,
and general lifestyle choices have promoted increased independence and the ability to live alone among other potentially vulnerable
segments of the population such as those with physical disabilities or medical conditions. These groups can be especially susceptible
to health problems and concerns for their physical wellbeing. Experts and even common sense agree that in order to help facilitate
independence and safety, more help is needed to provide these people with a point of contact in case of emergency, or the benefit
of support in a time of need. It was in response to this situation that the personal emergency response systems (PERS) industry
emerged in the United States and developed the first personal medical alarm. The most obvious and common use for personal medical
alarms is as a safeguard for the aged and persons with certain medical conditions, in case of an age or health related incident
that requires immediate attention, and in which the victim is unable to reach out for assistance via traditional means, including
the ability to make a telephone call.
Effective personal emergency response systems
with their emergency alert capabilities, are a key technology solution that can greatly help the vulnerable segment of the population
live a more free and active life while maintaining the security of being able to access immediate assistance as needed. In fact,
there has been a boom in the PERS market in recent years because of the growing aging population worldwide. According to Forrester
Research, Inc., the PERS market in the United States has grown at double digit rates, from approximately $350 million in 2004 to
$2 billion in 2012 and increasing every year thereafter.
Today, however, while the PERS industry has
been around for a long time, much of the technology within the industry has unfortunately remained stagnant. Many of the original
PERS solutions are still designed today to provide alerts whereby a push of a button simply triggers a call center operator to
respond by calling the device user at home, with two-way voice communication done through a centralized speaker box and not the
actual device itself. Thus, traditional PERS solutions currently on the market offer communication between user and a call center
only through a speaker box. This greatly inhibits the user’s freedom and limits their mobility to an area near the speaker
box.
Mobile medical alerts have recently been introduced
to the market. They are designed for the younger and more active person with medical issues, and also the active elderly adult.
And with the emergence of telehealth and biosensor
technology, the market is changing again, to an even younger people with medical issues that need to be tracked on a regular basis.
Medical Alarm Concepts offers a wide range
of solutions for the user from a simple at home medical alarm to a mobile device that enables the user to get help anywhere they
go. And now, with the introduction of the telehealth product in the first quarter of 2016, users will even be able to get help,
before they know they need it.
Market Opportunity
The healthcare industry is the largest industry
in the world, with the home healthcare market in developed countries in particular growing rapidly, driven in part by aging baby
boomers and a growing shift toward moving some types of healthcare away from the hospital and into the home.
These trends help make the home healthcare
sector an increasingly attractive market for successful companies that offer effective solutions in the PERS industry space.
The most obvious and common use for personal
medical alarms is as a safeguard for the aged and persons with certain medical conditions, not only in case of an age or health
related incident that requires immediate attention, but in which the victim is unable to reach out for assistance via traditional
means, including the placement of a telephone call. While very few things can prevent falls by aged persons or other unforeseen
medical emergencies, medical alarms mitigate the potential harm and expensive hospital stays done by initiating a timely response
to such an incident. And tracking devices, like the iHelp+™ for wearable biosensors will be able to monitor people with pre-existing
conditions.
In fact, there has been a boom in the PERS
market in recent years because of the growing aging population worldwide and in the United States in particular. According to the
U.S. Census Bureau, the number of people over 65 in the United States is set to jump from approximately 34 million today to approximately
65 million in 2025. By 2050, this number is projected to reach 86.7 million, with many of them living at home or in an alternative
home-type environment. Worldwide, this figure number is expected to double from some 550 million people currently at age 65 years
old to over 1.2 billion seniors by the time period around the year 2025.
Not surprisingly, experts in the health care
industry expect many of these seniors will want to continue living independently at home for as long as possible. Likewise, more
than any aging generation of the past, this population is expected to be more technology-savvy as consumers of healthcare are very
interested in playing an active role in personally managing their health and well-being. Importantly, they will likely look to
technologies that help them gain access to medical care while being able to remain independent and outside a hospital environment.
Effective personal emergency response systems
(PERS), with their emergency alert capabilities, are a key technology solution that can greatly help the vulnerable segment of
the population live a more free and active life while maintaining the security of being able to access immediate assistance as
needed. According to Forrester Research, Inc., the PERS market in the United States has grown at double digit rates, from approximately
$350 million in 2004 to $2 billion in 2012 and increasing every year thereafter
According to statistics from some of the industry’s
largest providers of traditional PERS solutions, customers of these emergency alert systems are typically individuals over the
age of 75 years old whom are predominantly female and live alone, with the actual buyers of PERS systems often being the end user’s
children who purchase the medical alarms for their parents.
Regarding purchases of PERS solutions worldwide,
the large majority of customers currently pay for their PERS products out-of-pocket, with government reimbursement for PERS items
varying from country to country. In the United States, for example, 25% of PERS sales were government reimbursed in 2004, compared
to 35% in Germany, just over 50% in France and nearly 100% in the United Kingdom. Furthermore, it is estimated government reimbursement
for PERS will ramp up in a number of countries, further fueling demand for these products.
Interestingly, as an approximation of the potential
PERS market size in the United States, Lifeline Systems, Inc., the founder of the PERS industry in the U.S. approximately 25 years
ago, served 250,000 users in the United States and Canada around the time frame of 1992. Today, Philips Medical Systems’
acquisition of Lifeline Medical Alarm has positioned it as the largest provider of traditional PERS systems with over 700,000 monitored
accounts, implying that the total market size of users is likely much larger.
Sales and Marketing
The company’s marketing efforts are focused
in four main areas, 1) Internet sales & marketing, 2) retail distribution, 3) wholesale distribution and 4) international markets.
Internet Sales & Marketing - the Company
markets the MediPendant® through its website at www.MediPendant.com and its iHelp™ mobile medical alarm to dealers at
www.ihelpalarm.com. Due to the complex sales process for medical alarms, which often require several phone calls among the end
user customer’s family members before a decision is reached, the MediPendant ®and iHelp™ websites are used mainly
for informational purposes with the actual sale typically taking place over the phone with one of our customer service representatives
or one of our many dealers. The company uses a variety of techniques, such as Internet paid ad campaigns and social media, in order
to drive web traffic to the websites, and initiate potential customer sales calls.
Retail Distribution - During 2012, the company
announced its plans to promote the MediPendant® product utilizing an e-commerce marketing strategy program designed specifically
for Costco Wholesale Corporation and its members. Costco began offering the MediPendant® to its customers via its website during
the spring of 2012. It is anticipated that Costco will be offering the new iHelp+ when it begins its rollout in early 2016.
The Company has relationships with two large
health insurance companies. Under the terms of the contract, the MediPendant® is currently being offered to qualified individuals,
based on certain criteria, at little or no cost to the individual. The health insurance company is responsible for the monthly
monitoring fee, as well as the cost of the equipment. These programs are not only an added benefit and security measure for qualifying
individuals living alone with medical issues, but also as a cost-saving method for health insurance companies, by helping to avoid
unnecessary ambulance and emergency room visits. We expect to expand this program to other health insurance companies throughout
the country, during 2016.
Wholesale Distribution - The Company currently
has several relationships with wholesalers who resell the MediPendant® and the iHelp™ in conjunction with their own monitoring
services. The company believes its relationships with its strategic partners is good. The company is currently in discussions with
several other wholesale groups looking to distribute our products through their own independent channels.
International Markets – The Company also
distributes its products in a wholesale manner to selected international markets. To date, the company has made sales in Denmark,
Ireland, Bermuda, and the People's Republic of China.
Competition
The market for Personal Emergency Response
Systems (PERS) is highly fragmented. Because the vast majority of the market participants are private corporations, only limited
information about competitors is available.
The vast majority of competitors market first
generation PERS systems that rely on a centralized base station for communication between the user and the monitoring center. The
second largest of these market participants is believed to be Life Alert, which was founded in 1987. The largest participant is
thought to be Philips Medical Systems, which several years ago purchased Lifeline Medical Alarms. Additionally, there are dozens
of smaller organizations marketing PERS devices and monitoring services.
Mobile Medical Alerts have recently been introduced
to the market. They are designed for the younger and more active person with medical issues and also the active elderly adult.
Termination of Patent Purchase Agreement
and New Patent Licensing Agreement
On July
10, 2008, the Company entered into a Purchase Agreement and Patent Assignment Agreement (the “Agreement”) effective
July 31, 2008. The Company was obligated to pay the seller $2,500,000 on June 30, 2012. The Agreement specifies interest of 6%
payable monthly, commencing on July 31, 2008. The seller had the right to reacquire all patents and applications if payment was
not made on June 30, 2012; however, this agreement has been extended quarterly since June 30, 2012. The patent purchase agreement
refers to patent #RE41845 and RE41392. The scope of the patents are as follows: A personal emergency communication system includes
a user-carried portable communication unit having a single button, which when depressed by the user, wirelessly sends a call request
signal to a base unit. The base unit initiates a telephone call through a dial-up network to an emergency response center and
places an operator at the emergency center responder in wireless voice communication with the portable unit when the call is connected.
The telephone number to be called can be stored in at least one of the portable unit and the base unit. A speech synthesizer operating
in combination with automated voice messages stored in at least one of the base unit and portable unit system memory are used
to advise the user of the status of the call, and to provide the user with verbal confirmation that functional systems of the
base unit are operating properly.
In June 2015, the Company made a
decision to terminate its patent agreement with Nevin Jenkins, the patent holder. Mr. Jenkins and the Company agreed to a new
revised licensing agreement whereby the company still has the ability to order and sell product utilizing the patent. The
company feels that the old agreement was too costly, and money would be better served based on its decision of investing in
more cellular type mPERS devices. Its new agreement with Mr. Jenkins will enable the Company to continue selling the
MediPendant® based on a cost plus structure.
Products
The Company’s primary focus is the sale
of its medical alarm and safety alert devices, which are some of the most advanced systems on the
market today.
MediPendant®
MediPendant® is the Company’s traditional
medical alarm product and the world’s first monitored two-way voice speakerphone pendant for the PERS (personal emergency
response) industry. It allows the user to speak and listen to the operator directly through the pendant. Medical Alarm Concepts’
alarm pendant also offers superior range radio frequency capabilities and an enhanced communication range that enable the user
to move freely in and about the home, including up to an extended range that is revolutionary in the PERS industry. Specifically,
the MediPendant® system enables the device wearer to move up to 600+ feet (line of sight) away from the main base station,
a distance that far exceeds competitive offerings on the market today that instead require the user to be within speaking distance
of the base station box, a situation that may not be conducive to an emergency if the end user is not at the base station.
As part of the MediPendant® product offering,
users receive Medical Alarm Concepts’ two-way communication pendant, base station unit and
a subscription to the Company’s around-the-clock personal response service monitoring center.
Emergency calls made through the Company’s
MediPendant® device are always handled by certified operators who are available around the clock 24-hours a day and guaranteed
to remain on the line with MediPendant® subscribers until the problem is resolved and/or help arrives. Operators are trained
to immediately assess the situation and can either connect the caller to a loved-one or dispatch medical personnel to the user’s
location. All emergency operators are prepared to bring calm, professional, knowledgeable insight to any situation. Additionally,
the call center can also maintain an important list of personal information for all MediPendant® users that includes an updated
list of medications, health information and the subscriber’s contact information including home address for location and
dispatch purposes. This personal information and medical history are securely stored by the monitoring center and can be provided
to the dispatched authority and emergency responders as necessary.
iHelp™
The company recently announced the launch of
a new, advanced medical alarm device called the iHelp™. The iHelp™ is an advanced mobile medical alert system, designed
to be easy to use, lightweight yet durable, but with significantly advanced features. The company has invested time, manpower,
and money into the development and launch of this product. The iHelp™ has enhanced features and functions including an advanced GPS system,
the ability to remotely locate a loved one, voice prompts, and a dealer portal that enables dealers to manage their own iHelp™
customer base. A significant amount of time was spent on the back end systems, including the dealer portal. iHelp™ dealers
have significant benefits, most importantly the ease of use in ordering product, activating and deactivating customers, tracking
their customer usage, and creating and printing a variety of reports. The iHelp™ dealer program is a turn-key program that
offers the dealer the opportunity to provide his/her customers with the latest products without having to change his/her own “back
end” systems.
iHelp + ™ 3G
The iHelp + ™ 3G is currently in the
development stage and will be available to the marketplace by 1st Quarter of 2016. The iHelp Plus™ is similar
to the iHelp™ in that it is an mPERS product. However, the iHelp +™ will have more advanced features and functions,
including the ability to detect if the wearer of the unit falls such as in the shower, will operate on the “3G” networks
when available, and be telehealth enabled. The unit will have superior audio quality, an extended battery life, and will operate
on both GSM and CDMA networks allowing for use with AT&T, T-Mobile, Verizon, & Sprint providers domestically, therefore
enabling extended coverage almost anywhere the user may go.
Please consider the following risk factors
and other information in this prospectus relating to our business before deciding to invest in our common stock. An investment
in our securities involves a high degree of risk. You should carefully consider the risks described below and all of the information
contained in this prospectus before making an investment decision. Our business, prospects, financial condition or operating results
could be harmed by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial.
The trading price of our securities could decline due to any of these risks, and, as a result, you may lose all or part of your
investment. Before deciding whether to invest in our securities you should also refer to the other information contained in this
prospectus.
Risks Related to Our Business and Industry
Our investors may lose their entire investment
because our financial status creates a doubt whether we will continue as a going concern.
The Company has a working capital deficit,
did not generate cash from its operations, has had stockholders’ deficit, and had operating losses for the past 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. 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.
We may incur operating losses in the foreseeable
future. Therefore, our auditors have raised substantial doubt about our ability to continue as a going concern.
If we are unable to successfully execute
any material part of our growth strategy, our future growth and ability to make profitable investments in our business would be
harmed.
Our success depends on our ability to expand
our business while maintaining profitability. We may not be able to sustain our growth or achieve profitability on a quarterly
or annual basis in future periods. Our future growth and profitability will depend upon a number of factors, including, without
limitation:
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the level of competition in our industry; |
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our ability to offer new products and to extend existing brands and products into new markets, including international markets; |
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our ability to identify, acquire and integrate strategic acquisitions; |
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our ability to remain competitive in our pricing; |
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our ability to maintain efficient, timely and cost-effective production and delivery of our products; |
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the efficiency and effectiveness of our sales and marketing efforts in building product and brand awareness and cross-marketing our brands; |
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our ability to identify and respond successfully to emerging trends in our industry; |
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the level of consumer acceptance of our products; and |
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general economic conditions and consumer confidence. |
We may not be successful in executing our growth
strategy, and even if we achieve our targeted growth, we may not be able to sustain profitability. Failure to successfully execute
any material part of our growth strategy would significantly impair our future growth and our ability to make profitable investments
in our business.
Our disclosure controls and procedures have
been found to be ineffective and we do not have sufficient and skilled accounting personnel with an appropriate level of technical
accounting knowledge and experience to identify and remedy material weaknesses in such controls and procedures.
Ronnie Adams, our Chief Financial Officer,
evaluated the effectiveness of our disclosure controls and procedures as of the end of our fiscal year ended June 30, 2015 pursuant
to Rules 13a-15(b) or 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) are controls and other procedures that are designed
to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by
us in the reports that we file under the Exchange Act is accumulated and communicated to our management, as appropriate, to allow
timely decisions regarding required disclosure. Based on their evaluation, Mr. Adams concluded that our disclosure controls and
procedures were ineffective as of June 30, 2015 to ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the
SEC’s rules and forms.
It should be noted that any system of controls,
however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system
are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future
events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed
in achieving its stated goals under all potential future conditions
Management is responsible for establishing
and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act. The Company’s internal control system over financial reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
Under the supervision and with the participation
of management, including the Company’s Chief Executive Officer/Chief Financial Officer, the Company conducted an evaluation
of the effectiveness of its internal control over financial reporting based on the framework in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included an assessment
of the design of the Company’s internal control over financial reporting and testing of the operational effectiveness of
its internal control over financial reporting. Based on this evaluation, our Chief Executive Officer/Chief Financial Officer concluded
as of June 30, 2015 that our internal controls over financial reporting were ineffective due to the material weakness identified.
A material weakness in internal controls is
a deficiency in internal control, or combination of control deficiencies, that adversely affects the Company’s ability to
initiate, authorize, record, process, or report external financial data reliably in accordance with accounting principles generally
accepted in the United States of America such that there is more than a remote likelihood that a material misstatement of the Company’s
annual or interim financial statements that is more than inconsequential will not be prevented or detected. In the course of making
our assessment of the effectiveness of internal controls over financial reporting, we identified the following material weaknesses
in our internal control over financial reporting: the Company is lacking qualified resources to perform the internal audit functions
properly and, in addition, the scope and effectiveness of the Company’s internal audit function are yet to be developed;
we currently do not have an audit committee; and the Company is relatively inexperienced with certain complexities within US GAAP
and SEC reporting. The Company did not have sufficient and skilled accounting personnel with an appropriate level of technical
accounting knowledge and experience in the application of generally accepted accounting principles accepted in the United States
of America commensurate with the Company’s disclosure controls and procedures requirements, which resulted in a number of
deficiencies in disclosure controls and procedures that were identified as being significant. The Company’s management believes
that the number and nature of these significant deficiencies, when aggregated, was determined to be a material weakness.
Our Board of Directors is currently composed
of two members: Ronnie Adams and Allen Polsky. All board actions require the approval of a majority of the directors in attendance
at a meeting at which a quorum is present. We currently do not have an audit committee. We intend, however, to establish an audit
committee of the board of directors as soon as practical. We envision that the audit committee will be primarily responsible for
reviewing the services performed by our independent auditors, evaluating our accounting policies and our system of internal controls.
Currently such functions are performed by our Board of Directors. The Board has determined that none of the board members qualifies
as a “financial expert” as defined by SEC rules implementing Section 407 of the Sarbanes-Oxley Act. Neither Mr. Adams
nor Mr. Polsky meet the definition of an “independent” director set forth in Rule 4200(a) (15) of the Market Place
Rules of the Nasdaq Stock Market, which is the independence standard that we have chosen to report under.
We face intense competition and competitive
pressures, which could adversely affect our results of operations and financial condition.
Our business is highly competitive. We compete
with many other suppliers, some of which are larger than we are, have greater financial and other resources, employ brands that
are more established, have greater consumer recognition or are more favorably perceived by consumers or retailers than our brands.
Some of our competitors have invested and continue to invest heavily to achieve increased production and marketing efficiencies.
In addition, our products may be subject to competition from lower-cost imports that intensify the price competition faced in various
markets. Some of our competitors are privately owned and have more latitude to operate than we do as a public company. If we do
not successfully compete with these competitors on factors such as new product development, innovation, brand, delivery, customer
service, price, and quality, our customers may consider other products. Competitive pressures from our competitors could adversely
affect our results of operations and financial condition.
We source our products from third-party
suppliers located in Asia, which reduces our control over the manufacturing process and may cause variations in quality or delays
in our ability to fill orders.
We source all of our Medical Alert parts and
materials from third party suppliers located in Asia. We depend on these suppliers to deliver products that are free from defects,
comply with our specifications, meet health, safety and delivery requirements, and are competitive in cost. If our suppliers deliver
products that are defective or that otherwise do not meet our specifications, our return rates may increase, and the reputation
of our products and brands may suffer. In addition, if our suppliers do not meet our delivery requirements or cease doing business
with us for any reason, we might miss our customers’ delivery deadlines, which could in turn cause our customers to cancel
or reduce orders, refuse to accept deliveries, demand reduced prices, or change suppliers. The overseas sourcing of product subjects
us to the numerous risks of doing business abroad, including but not limited to, rapid changes in economic or political conditions,
civil unrest, political instability, war, terrorist attacks, international health epidemics, work stoppages or labor disputes,
currency fluctuations, increasing export duties, trade sanctions and tariffs, and variations in product quality. We may also experience
temporary shortages due to disruptions in supply caused by weather or transportation delays. Even if acceptable alternative suppliers
are found, the process of locating and securing such alternatives is likely to disrupt our business, and we may not be able to
secure alternative suppliers on acceptable terms that provide the same quality product or comply with all applicable laws. Any
of these events would cause our business, results of operations, and financial condition to suffer. The Company had only one supplier
during the years ended June 30, 2014 and 2013, respectively, and have two suppliers in the year ended June 30, 2015. If relations
with either of these suppliers become unfavorable or if we are unable to purchase our product from either of these suppliers for
any reason whatsoever, whether within or not within our control, we will need to find other suppliers on at least the same terms
and conditions as our current suppliers.
We may not be able to timely and effectively
implement controls and procedures required by Section 404 of the Sarbanes-Oxley Act of 2002.
We are subject to Section 404 of the Sarbanes-Oxley
Act of 2002. The standards required for a public company under Section 404 of the Sarbanes-Oxley Act of 2002 are significantly
more stringent than those required of a privately-held company. Management may not be able to effectively and timely implement
controls and procedures that adequately respond to the increased regulatory compliance and reporting requirements that are applicable.
If we are not able to implement the additional requirements of Section 404 in a timely manner or with adequate compliance,
we may not be able to assess whether our internal controls over financial reporting are effective, which may subject us to adverse
regulatory consequences and could harm investor confidence and the market price of our common stock.
Requirements associated with being a public
company have, and will continue to, increase our costs significantly and divert significant resources and management attention.
We are subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the other rules and regulations of the
SEC. We have made, and will continue to make, changes in our corporate governance, corporate internal controls, internal audit,
disclosure controls and procedures and financial reporting and accounting systems to manage our growth and our obligations as a
public company. However, the expenses that will be required in order to adequately manage our obligations as a public company are
material. Compliance with the various reporting and other requirements applicable to public companies will also require considerable
time and attention of management. We cannot predict or estimate the amount of the additional costs we may incur, the timing of
such costs, or the degree of impact that our management’s attention to these matters will have on our business. In addition,
the changes we make may not be sufficient to allow us to satisfy our obligations as a public company on a timely basis. In addition,
being a public company could make it more difficult or more costly for us to obtain certain types of insurance, including directors’
and officers’ liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially
higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract
and retain qualified persons to serve on our Board of Directors, our board committees or as executive officers.
Many of our competitors are not subject to
these requirements, because they do not have securities that are publicly traded on a U.S. securities exchange or other securities
exchanges. As a result, these competitors are not subject to the risks identified above. In addition, the public disclosures that
we are required to provide pursuant to the SEC’s rules and regulations may furnish our competitors with greater competitive
information regarding our operations and financial results than we are able to obtain regarding their operations and financial
results, thereby placing us at a competitive disadvantage.
Risks Related to Our Operations
Our independent
auditors have expressed substantial doubt about our ability to continue as a going concern.
Our independent registered public accounting firm
has included in our financial statements an explanatory paragraph regarding the substantial doubt about our ability to continue
as a going concern. The Company
had working capital deficit of $808,693, a stockholders’ deficit of $808,693, did not generate cash from its operations,
and had operating loss for past two years. Failure to generate sufficient cash flows from operations raise additional capital or reduce discretionary
spending will have a material adverse effect on our ability to achieve our intended business objectives. While management has a
plan but not the requirement to fund ongoing operations, there is no assurance that its plan will be successfully implemented.
As a result, you may lose the entire value of your investment in our company.
Projections: In the event the company
is not successful in reaching its revenue targets, additional funds may be required, and we may not be able to proceed with our
business plan for the development and marketing of our core services. Should this occur, we may be forced to suspend or cease operations.
Management intends to raise additional funds by way of a public or private offering. 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, raise additional money, and generate sufficient revenues.
Liquidity:
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. 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, raise additional money, and generate sufficient revenues.
Business Changes: Our ability to adapt
to Industry changes in technology, or market circumstances, may drastically change the business environment. If we are unable to
recognize these changes in good time, are late in adjusting our business model, or if circumstances arise such as pricing actions
by competitors, then this could have a material adverse effect on our growth ambitions, financial condition and operating results
IT Security Threats: The global increase
in security threats and higher levels of professionalism in computer crime have increased the importance of effective IT security
measures, including proper identity management processes to protect against unauthorized systems access. Our systems, networks,
products, solutions and services remain potentially vulnerable to attacks, which could potentially lead to the leakage of confidential
information, improper use of our systems and networks, which could in turn materially adversely affect our financial condition
and operating results.
Employees: The attraction and retention
of talented employees in sales and marketing, research and development, finance and general management, as well as of specialized
technical personnel, is critical to our success and could also result in business interruptions. There can be no assurance that
we will be successful in attracting and retaining all the highly qualified employees and key personnel needed in the future.
Warranty and product liability: We may
from time to time be subject to warranty and product liability claims with regard to product performance and effects. We could
incur product liability losses as a result of repair and replacement costs in response to customer complaints or in connection
with the resolution of contemplated legal proceedings relating to such claims. Successful claims for damages may be made that are
in excess of our insurance coverage. Our insurance could become more expensive and there is no assurance that insurance will still
be available on acceptable terms. In addition to potential losses arising from claims and related legal proceedings, product liability
claims could affect our reputation and relationships with key customers. As a result, product liability claims could materially
impact our financial condition and operating results.
Product Offerings: In order to develop
additional revenues, we have plans to invest in product(s) that are synergistic with our current product. Investing in these products
could expose us to adaptive technologies or business models that may or may not be successful. They may not be timely nor cost-effective,
and there is no assurance the desired results will be achieved. We may need to increase our inventory levels, increase our accounts
receivables, and be exposed to bad debt and obsolete inventory, and this would negatively impact our operations and balance sheet.
Acquisitions: We are looking for acquisitions
that will increase our revenues, cash flow, and profits. There is a risk that we will not have the ability to properly integrate
these businesses, products, or services with our current business line. We are not certain that we will be able to successfully
identify suitable acquisition candidates, AND negotiate these deals on terms acceptable to us. In addition, successful integration
may involve operational changes, additions, and significant expenses. We may need to borrow money and leveraging ourselves for
acquisitions could limit our financial flexibility in the future. If we fail to successfully manage our new product(s) and/or acquisitions,
our business may suffer.
Risks Related to Our Common Stock
The market price of our common stock may
decline.
Fluctuations in the price of our securities
could contribute to the loss of all or part of your investment. The trading price of our shares has been subject to wide fluctuations
in response to various factors, some of which are beyond our control. Any of the factors listed below could have a material adverse
effect on your investment in our securities and our securities may trade at prices significantly below the price you paid for them.
In such circumstances, the trading price of our securities may not recover and may experience a further decline.
Factors affecting the
trading price of our securities may include:
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actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us; |
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changes in the market’s expectations about our operating results; |
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success of competitors; |
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our operating results failing to meet the expectation of securities analysts or investors in a particular period; |
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changes in financial estimates and recommendations by securities analysts concerning us or the consumer goods market in general; |
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operating and stock price performance of other companies that investors deem comparable to the Company; |
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our ability to market new and enhanced products on a timely basis; |
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changes in laws and regulations affecting our business; |
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commencement of, or involvement in, litigation involving the Company; |
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changes in our capital structure, such as future issuances of securities or the incurrence of additional debt; |
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the volume of shares of our common stock available for public sale; |
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any major change in our board or management;
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sales of substantial amounts of common stock by our directors, executive officers or significant stockholders or the perception that such sales could occur; and |
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general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations and acts of war or terrorism. |
Broad market and industry factors may materially
harm the market price of our securities irrespective of our operating performance. The stock market in general has experienced
price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular
companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of
investor confidence in the market for retail stocks or the stocks of other companies which investors perceive to be similar to
the Company could depress our stock price regardless of our business, prospects, financial conditions or results of operations.
A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our
ability to obtain additional financing in the future.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This prospectus contains forward-looking statements
within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Specifically,
forward-looking statements may include statements relating to:
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our future financial performance; |
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changes in the market for our products; |
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our expansion plans and opportunities; and |
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other statements preceded by, followed by or that include the words “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “target” or similar expressions. |
These forward-looking statements are based
on current expectations and assumptions that are subject to risks and uncertainties that may cause our actual results, performance,
or achievements to differ materially from any expected future results, performance, or achievements expressed or implied by such
forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking
statements. These risks and uncertainties include, but are not limited to:
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the level of demand for our products; |
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competition in our markets; |
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our ability to grow and manage growth profitably; |
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our ability to access additional capital; |
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changes in applicable laws or regulations; |
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our ability to attract and retain qualified personnel; |
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the possibility that we may be adversely affected by other economic, business, and/or competitive factors; and |
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other risks and uncertainties indicated in this prospectus, including those under “Risk Factors.” |
There is no assurance that our expectations
will be realized. If one or more of these risks or uncertainties materialize, or if our underlying assumptions prove incorrect,
actual results may vary materially from those expected, estimated, or projected. Such risks and uncertainties also include those
set forth under “Risk Factors” herein and in the documents herein. Our forward-looking statements speak only as of
the time that they are made and do not necessarily reflect our outlook at any other point in time. Except as required by law or
regulation, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information,
future events, or for any other reason. However, your attention is directed to any further disclosures made on related subjects
in our subsequent annual and periodic reports filed with the Securities and Exchange Commission on Forms 10-K, 10-Q and 8-K and
Proxy Statements on Schedule 14A.
References herein to “Medical Alarm,”
“we,” “us,” “our,” “the Company,” “our company,” and “our business”
refer to Medical Alarm Concepts Holding, Inc.
ITEM 1B. |
Unresolved Staff Comments |
None.
Our business office is located at 200 West Church
Road Suite B, King of Prussia, PA 19406. This office is leased. We believe the facilities we are now using are adequate and suitable
for business requirements.
ITEM 3. |
Legal Proceedings |
There are no legal claims currently pending
or threatened against us that in the opinion of our management would be likely to have a material adverse effect on our financial
position, results of operations or cash flows.
ITEM 4. |
Mine Safety Disclosures |
Not applicable.
Part II
ITEM 5. |
Market for Registrants’ Common Equity, Related Stockholder Matters and Issuer Purchasers of Equity Securities |
Market Information
Our common stock has been quoted on the OTC
Bulletin Board system under the symbol “MDHI” since January 2, 2009.
The market price of our common stock will be
subject to significant fluctuations in response to variations in our quarterly operating results, general trends in the market,
and other factors, over which we have little or no control. In addition, broad market fluctuations, as well as general economic,
business and political conditions, may adversely affect the market for our common stock, regardless of our actual or projected
performance. See Item 1A – “Risk Factors.”
The following table sets forth the range of the
high and low sales prices per share of our common stock for the fiscal quarters indicated.
Fiscal Year 2015 | |
High | |
Low |
First Quarter | |
$ | 0.50 | | |
$ | 0.30 | |
Second Quarter | |
$ | 0.47 | | |
$ | 0.15 | |
Third Quarter | |
$ | 0.35 | | |
$ | 0.10 | |
Fourth Quarter | |
$ | 0.17 | | |
$ | 0.11 | |
Fiscal Year 2014 | |
High | |
Low |
First Quarter | |
$ | 1.76 | | |
$ | 1.12 | |
Second Quarter | |
$ | 1.28 | | |
$ | 0.64 | |
Third Quarter | |
$ | 1.12 | | |
$ | 0.15 | |
Fourth Quarter | |
$ | 0.52 | | |
$ | 0.22 | |
* Price Not available for Period
Holders
As of December 1, 2015, there were approximately
215 shareholders of record of our common shares.
Dividend Policy
Our policy is to reinvest earnings in order
to fund future growth. Therefore, we have not paid, and currently do not plan to declare dividends on our common stock. Although
we intend to retain our earnings, if any, to finance the exploration and growth of our business, our Board of Directors will have
the discretion to declare and pay dividends in the future.
Payment of dividends in the future will depend
upon our earnings, capital requirements, and other factors, which our Board of Directors may deem relevant.
Equity Compensation Plan Information
We do not have any equity compensation plans
under which equity securities of the Company are authorized for issuance and we have not granted any stock options.
ITEM 6. |
Selected Financial Data |
Not applicable.
ITEM 7. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis should
be read in conjunction with our consolidated financial statements and the notes thereto in Part II, Item 8 to this Annual Report
on Form 10-K. This discussion contains forward-looking statements reflecting our current expectations. Actual results and the timing
of events may differ significantly from those projected in forward- looking statements due to a number of factors, including those
set forth in Item 1A “Risk Factors” of this Annual Report on Form 10-K.
Given these uncertainties, readers of this
filing and investors are cautioned not to place undue reliance on such forward-looking statements.
Results of Operations
Revenue
Revenue generated during the years ended
June 30, 2015 and 2014 were $1,147,099 and $1,153,693, respectively; representing a 1% or $6,594 decrease in the year ended
June 30, 2015 comparing with last year, resulting from a change in strategic business direction toward more widespread
product distribution and away from reliance on only a few resellers and distributors. The Company believes this change in
business direction will lead to stronger growth and margins and higher overall sales during future periods. During 2015 and
2014, revenue was generated from sales to distributors, resellers and from direct sales to consumers who pay the Company for
monthly monitoring services.
Cost of Revenue
Cost of revenue incurred during years ended
June 30, 2015 and 2014 were $366,702 and $324,503, respectively, representing a 13% or $42,199 increase in the year ended
June 30, 2015 comparing with last year. The increase of cost of
sales was mainly due to higher cost of sales products sold during current fiscal year as compared with previous fiscal year.
Gross Profit
Gross profit generated during fiscal 2015
and 2014 was $780,397 and $829,190, representing 6% or $48,793 decrease in the year ended
June 30, 2015 comparing with last year. The gross profit margin for 2015 and 2014 were 68%
and 72%, respectively.
Selling Expenses
Selling expenses incurred during fiscal
2015 and 2014 was $305,738 and $212,133, respectively, representing $93,605 or 44% increase in the year ended
June 30, 2015 comparing with last year. During fiscal 2015, the Company shifted its sales emphasis more toward brand marketing, which contributed to the
increase in sales expenses.
General and Administrative
General and administrative expenses for
fiscal 2015 and 2014 were $987,035 and $1,695,423, respectively; representing 42% or $708,388 decrease in the year ended
June 30, 2015 comparing with last year,. During the year
ended June 30, 2014, the Company issued 1,493,669 shares of common stock to management pursuant to Global Settlement
Agreement and recorded stock compensation expense of $ 955,948. The Company also issued 50,000 shares of common stocks to a
shareholder for consulting services during the year ended June 30, 2014 which was valued at $38,500.
During the year ended June 30, 2015,
the Company issued 1,375,000 shares of common stock to consultants for services performed. Those shares were valued at
$305,039 which was amortized over service period.
Change in Fair Value of Derivative Instrument
Changes in fair value of derivative instrument
generated $1,514,947 income during fiscal 2014; while expense generated from the changes in fair value of derivative instrument
during 2015 was $11,335.
Interest Expense
Interest expense for fiscal 2015 and 2014
were $117,350 and $189,220, respectively. The $71,870 or 38% decrease in interest expense was mainly due to the decrease of
loan amount. The Company also recorded interest expense of $8,436 and $22,320 for the year ended June 30, 2015 and 2014,
respectively, on credit line from related parties.
Gain from Termination of Patent Agreement
On July 10, 2008, the Company
entered into a Purchase Agreement and Patent Assignment Agreement (the "Agreement") effective July 31, 2008. The Company
was obligated to pay the seller $2,500,000 on June 30, 2012. The Agreement specifies interest of 6% payable monthly,
commencing on July 31, 2008. The seller had the right to reacquire all patents and applications if payment was not made on
June 30, 2012. This agreement had been extended quarterly since June 30, 2012. This patent was recorded as an intangible
asset and amortized over its estimated useful life. In June 2015, the Company made decision to terminate the Agreement. Upon
termination of this Agreement, the loan payable of $2,500,000 and unamortized balance of intangible asset of
$1,023,804 were written off and a gain of $1,476,196 was recorded.
Net Income (Loss)
Net income for 2015 and 2014 was $826,699 and
$225,041, respectively, for the reasons stated above.
Liquidity and Capital Resources
As of June 30, 2015 and 2014, we had $1,335 and
$7,673 in cash, respectively.
During fiscal 2015 and 2014, operating activities
used net cash of $466,372 and $25,684, respectively. Main reasons for the $440,688 change in net cash used in operating activities
were outlined below:
1. |
Net income generated during 2015 and 2014 was $826,699 and $225,041; |
2. |
Stock issued for services was $284,370 and $994,448 in 2015 and 2014, respectively; |
3. |
Changes in fair value of derivative instrument during 2014 generated non-cash income of $1,514,947; while during 2015 such changes incurred net non-cash loss of $11,335; |
4. |
During 2015, termination of patent
purchase agreement generated non-cash income of 1,476,197; there was no transaction of similar nature during
2014; |
5. |
During fiscal 2015 and 2014, the increase of accounts receivable generated net cash outflow of $62,924 and 33,249, respectively. |
6. |
During 2015, the changes of deferred revenue generated net cash outflow of $11,533 while, it has generated net cash inflow of $105,206 during 2014. |
During fiscal 2015 and 2014, investing activities
used net cash of $30,000 and $0, respectively.
During fiscal 2015, the Company lent $30,000
to one of employees. There was no transaction in similar nature during previous year. The loan was made pursuant to a secured promissory
note that calls for the entire amount of the loan to be paid in full on or before December 31, 2015. The loan does not bear interest
and payments of principal are to be made as soon as possible or in incremental amounts acceptable to the Company. Repayment of
the loan is secured by 60,000 common shares of the Company owned by the employee that have been pledged as collateral.
During fiscal 2015 and 2014, financing activities
generated net cash inflow of 490,034 and $27,500, respectively. The increase of $462,534 was mainly due the following reasons.
1. |
During 2015, proceeds from credit line generated net cash inflow of $388,000; there was no transaction in similar nature during 2014 |
2. |
During 2015, proceeds from note payable,
net of repayment were $81,294, comparing to $5,000 during fiscal 2014. |
We believe we can satisfy our cash requirements
for the next twelve months with our current cash flow from business operations, although there can be no assurance to that effect.
If we are unable to satisfy our cash requirements, we may be unable to proceed with our plan of operation. We do not anticipate
the purchase or sale of any significant equipment. We also do not expect any significant additions to the number of employees.
The foregoing represents our best estimate of our cash needs based on current planning and business conditions. In the event we
are not successful in reaching our initial revenue targets, additional funds may be required, and we may not be able to proceed
with our business plan for the development and marketing of our core services. Should this occur, we may be forced to suspend or
cease operations.
We anticipate incurring operating losses in
the foreseeable future. Therefore, our auditors have raised substantial doubt about our ability to continue as a going concern.
Going Concern
The Company has working capital deficit, did
not generate cash from its operations, had stockholders’ deficit, and had operating losses for the past 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. 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. We may incur operating
losses in the foreseeable future. Therefore, our auditors have raised substantial doubt about our ability to continue as a going
concern.
Off-Balance Sheet Arrangements
At June 30, 2015, we did not have any relationships
with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose
entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
As such, we are not exposed to any financing, liquidity, market or credit risk that could arise had we engaged in such relationships.
ITEM 8. |
Financial Statements and Supplementary Data |
The full text of our audited consolidated financial
statements as of June 30, 2015 and 2014 begins on page F-1 of this annual report.
ITEM 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Not available.
ITEM 9A. |
Controls and Procedures |
Disclosure Controls and Procedures
Ronnie Adams, our Chief Financial Officer,
evaluated the effectiveness of our disclosure controls and procedures as of the end of our fiscal year ended June 30, 2015 pursuant
to Rules 13a-15(b) or 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) are controls and other procedures that are designed
to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by
us in the reports that we file under the Exchange Act is accumulated and communicated to our management, as appropriate, to allow
timely decisions regarding required disclosure. Based on their evaluation, Mr. Adams concluded that our disclosure controls and
procedures were ineffective as of June 30, 2015 to ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the
SEC’s rules and forms.
In order to rectify our ineffective disclosure
controls and procedures, we are developing a plan to ensure that all information will be recorded, processed, summarized and reported
accurately, and as of the date of this report, we have taken the following steps to address our ineffective disclosure controls
and procedures:
• |
We will continue to educate our management personnel to comply with the disclosure requirements of the Exchange Act and Regulation S-K; and · |
• |
We will increase management oversight of accounting and reporting functions in the future. |
It should be noted that any system of controls,
however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system
are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future
events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed
in achieving its stated goals under all potential future conditions
Management’s Annual Report on Internal
Control Over Financial Reporting.
Management is responsible for establishing
and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act. The Company’s internal control system over financial reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
Under the supervision and with the participation
of management, including the Company’s Chief Executive Officer/Chief Financial Officer, the Company conducted an evaluation
of the effectiveness of its internal control over financial reporting based on the framework in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included an assessment
of the design of the Company’s internal control over financial reporting and testing of the operational effectiveness of
its internal control over financial reporting. Based on this evaluation, our Chief Executive Officer/Chief Financial Officer concluded
as of June 30, 2015 that our internal controls over financial reporting were ineffective due to the material weakness identified.
A
material weakness in internal controls is a deficiency in internal control, or combination of control deficiencies, that adversely
affects the Company’s ability to initiate, authorize, record, process, or report external financial data reliably in accordance
with accounting principles generally accepted in the United States of America such that there is more than a remote likelihood
that a material misstatement of the Company’s annual or interim financial statements that is more than inconsequential will
not be prevented or detected. In the course of making our assessment of the effectiveness of internal controls over financial reporting,
we identified the following material weakness in our internal control over financial reporting:
☐ | | The Company is lacking qualified resources to perform the internal audit functions
properly. In addition, the scope and effectiveness of the Company’s internal audit function are yet to be developed. |
☐ | | The Company is relatively inexperienced with certain complexities within US GAAP and
SEC reporting. |
Remediation
Initiative
• | | We are committed to establishing the disclosure controls and procedures but due to
limited qualified resources in the region, we were not able to hire sufficient internal audit resources by June 30, 2015. However,
internally we established a central management center to recruit more senior qualified people in order to improve our internal
control procedures. Externally, we are looking forward to engaging an accounting firm to assist the Company in improving the Company’s
internal control system based on the COSO Framework. We also will increase our efforts to hire the qualified resources. |
• | | We intend to establish an audit committee of the board of directors as soon as practicable.
We envision that the audit committee will be primarily responsible for reviewing the services performed by our independent auditors,
evaluating our accounting policies and our system of internal controls. |
Conclusion
The
Company did not have sufficient and skilled accounting personnel with an appropriate level of technical accounting knowledge and
experience in the application of generally accepted accounting principles accepted in the United States of America commensurate
with the Company’s disclosure controls and procedures requirements, which resulted in a number of deficiencies in disclosure
controls and procedures that were identified as being significant. The Company’s management believes that the number and
nature of these significant deficiencies, when aggregated, was determined to be a material weakness.
Despite
of the material weaknesses and deficiencies reported above, the Company’s management believes that its consolidated financial
statements included in this report fairly present in all material respects the Company’s financial condition, results of
operations and cash flows for the periods presented and that this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report.
This Annual Report does not include an attestation
report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s
report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the
SEC that permit the Company to provide only management’s report in this Annual Report.
Changes in Internal Control over Financial
Reporting
There has been no change in our internal control
over financial reporting (as defined in Rules 13a-15(f) and 15d-
15(f) under the Exchange Act) during the most
recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
ITEM 9B. |
Other Information |
None.
Part III
ITEM 10. |
Directors, Executive Officers and Corporate Governance |
Directors and Executive Officers
Our executive officers and directors and their
respective ages as of June 30, 2014 are as follows:
Name |
|
Age |
|
Position |
Ronnie Adams |
|
66 |
|
Chief Executive Officer, President, and Chairman of the Board of Directors |
Allen Polsky |
|
70 |
|
Director |
Set forth below is a brief description of the
background and business experience of our executive officers and directors for the past five years.
Ronnie Adams
Ronnie Adams serves as our CEO, President, Chief
Financial Officer, and Director. He has also served as President and Chief Financial Officer of a NASDAQ company that he started
from inception and grew to over $60 million. Mr. Adams was the recipient of the prestigious Entrepreneur of the Year Award in 1996,
sponsored by Dow Jones, NASDAQ, and Ernst & Young.
Allen Polsky
Allen Polsky has 30 years of experience in the
security and life safety industry and currently serves as Medical Alarm Concepts’ Vice President of Strategic Alliances.
Prior to joining MAC, he was a Senior Security consultant for JM resources, a structured wiring company. He was also a co-founder
of Connective Home Acquisition.
Family Relationships
There are no family relationships among our directors
or executive officers.
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Securities Exchange Act
of 1934 requires our officers, directors and certain persons holding more than 10 percent of a registered class of our common stock
to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock. Officers,
directors and certain other shareholders are required by the SEC to furnish the Company with copies of all Section 16(a) forms
they file. To the best of the Company’s knowledge, based solely upon a review of the copies of such reports. The Company’s
quarterly report on Form 10-Q for quarterly period ended March 31, 2013 was filed with the SEC on May 29, 2014. The Company’s
annual report on Form 10-K for fiscal year ended June 30, 2013 was filed with the SEC on July 17, 2014. The Company’s quarterly
report on Form 10-Q for period ended September 30, 2013, December 31, 2013 and March 31, 2014 were filed with the SEC on September
12, September 25 and October 8, 2014, respectively, all other required filings were not made on a timely basis.
Code of Ethics
We have adopted a Code of Business Conduct
and Ethics (the “Code”) that is applicable to all employees, consultants and members of the Board of Directors, including
the Chief Executive Officer, Chief Financial Officer and Secretary. This Code embodies our commitment to conduct business in accordance
with the highest ethical standards and applicable laws, rules and regulations. We will provide any person a copy of
the Code, without charge, upon written request to the Company’s Secretary. Requests should be addressed in writing to Mr.
Ronnie Adams at the Company’s mailing address.
Director Nominees Recommended by Stockholders
We have not implemented any changes to the
procedures by which stockholders may recommend nominees to our board of directors since we last disclosed those procedures in our
most recent proxy statement filed with the SEC.
Board Composition; Audit Committee and
Financial Expert
Our Board of Directors is currently composed
of two members: Ronnie Adams and Allen Polsky. All board actions require the approval of a majority of the directors in attendance
at a meeting at which a quorum is present.
We currently do not have an audit committee.
We intend, however, to establish an audit committee of the board of directors as soon as practical. We envision that the audit
committee will be primarily responsible for reviewing the services performed by our independent auditors, evaluating our accounting
policies and our system of internal controls. Currently such functions are performed by our Board of Directors.
The Board has determined that none of the board
members qualifies as a “financial expert” as defined by SEC rules implementing Section 407 of the Sarbanes-Oxley Act.
Neither Mr. Adams nor Mr. Polsky meet the definition of an “independent” director set forth in Rule 4200(a) (15) of
the Market Place Rules of the Nasdaq Stock Market, which is the independence standard that we have chosen to report under.
Board meetings and committees; annual
meeting attendance.
During fiscal year 2014, the Board of Directors
had one meeting in total. All members of the Board of Directors attended the meetings. All members of the Board of Directors are
required to attend the annual meetings of securities holders. On December 18, 2013, all members of the Board of Directors attended
the meeting of the Board of Directors.
ITEM 11. |
Executive Compensation |
The following summary compensation table sets
forth all compensation awarded to, earned by, or paid to the named executive officer during the years ended June 30, 2015 and 2014
in all capacities for the accounts of our executive officers, including the Chief Executive Officer (CEO) and Chief Financial Officer
(CFO):
Summary Compensation Table
The following summary compensation table sets
forth all compensation awarded to, earned by, or paid to the named executive officer during the years ended June 30, 2015 and 2014
in all capacities for the accounts of our executive officers, including the Chief Executive Officer (CEO) and Chief Financial Officer
(CFO):
|
|
Summary Compensation Table |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
Nonqualified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
Option |
|
Incentive Plan |
|
Deferred |
|
All Other |
|
|
|
|
Name and principal |
|
|
|
Salary |
|
Bonus |
|
Awards |
|
Awards |
|
Compensation |
|
Compensation |
|
Compensation |
|
Total |
|
position |
|
Year |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
Earnings ($) |
|
($) |
|
($) |
|
(a) |
|
(b) |
|
(c) |
|
(d) |
|
(e) |
|
(f) |
|
(g) |
|
(h) |
|
(i) |
|
(j) |
|
Ronnie Adams CEO |
|
2015 |
|
$ |
56,800 |
|
Nil |
|
Nil |
|
Nil |
|
Nil |
|
Nil |
|
$ |
6,040 |
|
$ |
62,840 |
|
|
2014 |
|
$ |
56,800 |
|
Nil |
|
Nil |
|
Nil |
|
Nil |
|
Nil |
|
$ |
6,040 |
|
$ |
62,840 |
|
Allen Polsky |
|
2015 |
|
|
12,000 |
|
Nil |
|
Nil |
|
Nil |
|
Nil |
|
Nil |
|
|
Nil |
|
|
12,000 |
|
|
2014 |
|
|
12,000 |
|
Nil |
|
Nil |
|
Nil |
|
Nil |
|
Nil |
|
|
Nil |
|
|
12,000 |
|
Option Grants.
There were no individual grants of stock options
to purchase our common stock made to the executive officers named in the Summary Compensation Table through June 30, 2015.
Aggregated Option Exercises and Fiscal Year-End
Option Value.
There were no stock options exercised during period
ending June 30, 2015 by the executive officers named in the Summary Compensation Table.
Long-Term Incentive Plan (“LTIP”)
Awards.
There were no awards made to the named executive
officers in the last completed fiscal year under any LTIP.
Compensation of Directors
Directors are permitted to receive fixed fees
and other compensation for their services as directors. The Board of Directors has the authority to fix the compensation of directors.
Employment Agreements
We do not have any employment agreements in place
with our executive officers and directors.
ITEM 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The following table sets forth as of
December 17, 2015, certain information with respect to the beneficial ownership of our common stock by (i) each of our
executive officers, (ii) each person who is known by us to beneficially own more than 5% of our outstanding common stock, and
(iii) all of our directors and executive officers as a group. Percentage ownership is calculated based on 7,598,676 shares of
our common stock outstanding as of November 23, 2015. None of the shares listed below are issuable pursuant to stock options
or warrants of the Company.
Title of class | |
Name and Address of Beneficial Ownership | |
Amount and Nature of Beneficial Owner | |
Percentage of class |
Common Stock | |
Ronald Adams 200 West Church Road, Suite B King of Prussia, PA 19406 | |
| 634,164 | | |
| 8.35 | % |
Common Stock | |
Alan Polsky 200 West Church Road, Suite B King of Prussia, PA 19406 | |
| 227,478 | | |
| 3.00 | % |
Common Stock | |
All officers and directors as a group (2 persons) | |
| 861,642 | | |
| 11.35 | % |
| |
| |
| | | |
| | |
Common Stock | |
Biotech Debt Liquidation Fund, LLC 1156 Clement Street San Francisco, CA 94118 | |
| 492,662 | | |
| 6.49 | % |
Common Stock | |
Alliance Media Group, Inc. 295 NW Common Loop Suite 115257 Lake City, Fl 32055 | |
| 500,000 | | |
| 6.58 | % |
Common Stock | |
Adrian Neilan Ballinamona, Askeaton, Co Limerick, Ireland | |
| 500,000 | | |
| 6.58 | % |
Common Stock | |
Robert McGuire 4430 Haskell Ave Encino, Ca 91436 | |
| 699,934 | | |
| 9.21 | % |
Common Stock | |
JTT-EMS LTD 801-6081 No. 3 Road Richmond, B.C., V6y 2B2 | |
| 488,184 | | |
| 6.43 | % |
Change in Control
None.
ITEM 13. |
Certain Relationships and Related Transactions, and Director Independence |
See Note 6,7,8,11 to consolidated financial statements.
ITEM 14. |
Principal Accountant Fees and Services |
Fees Paid to Independent Public Accountants for
2015 and 2014.
Audit Fees
For the Company’s fiscal years ended June
30, 2015 and 2014, we were billed approximately $42,500 and $45,000, respectively, for professional services rendered for the audit
and review of our financial statements.
Audit-Related Fees
There were $4,000 and $0 billed for audit
related services for the years ended June 30, 2015 and 2014.
Tax Fees
For the Company’s fiscal years ended June
30, 2015 and 2014, we were not billed for professional services rendered for tax compliance, tax advice, and tax planning.
All Other Fees
None.
Policy on Audit Committee Pre-Approval of
Audit and Permissible Non-Audit Services of Independent Auditors
Since we did not have a formal audit committee,
our board of directors served as our audit committee. We have not adopted pre-approval policies and procedures with respect to
our accountants in 2015. All of the services provided and fees charged by our independent registered accounting firms in 2015 were
approved by the board of directors.
Part IV
ITEM 15. |
Exhibits and Financial Statement Schedules |
MEDICAL ALARM CONCEPTS HOLDIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Signatures
Pursuant to the requirements of Section 13 or
15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: December 18, 2015
|
MEDICAL ALARM CONCEPTS HOLDING, INC. |
|
|
|
|
By: |
/s/ Ronnie Adams |
|
|
Ronnie Adams |
|
|
Chief Executive Officer and Chief Financial Officer |
|
|
(Principal Executive Officer, Principal Financial and Accounting Officer) |
|
|
|
|
By: |
/s/ Allen Polsky |
|
|
Allen Polsky |
|
|
Director |
Pursuant to the requirements of Section 13 or
15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf of the registrant and
in the capacities and on the dates indicated.
|
|
Chief Executive Officer and |
|
|
|
|
Chief Financial Officer |
|
|
|
|
(Principal |
|
|
/s/ Ronnie Adams |
|
Executive Officer, Principal Financial and Accounting Officer) |
|
December 18, 2015 |
Ronnie Adams |
|
|
|
|
|
|
|
|
|
/s/ Allen Polsky |
|
Director |
|
December 18, 2015 |
Allen Polsky |
|
|
|
|
MEDICAL ALARM CONCEPTS HOLDING, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm |
F-2 |
Consolidated Balance Sheets |
F-3 |
Consolidated Statements of Operations |
F-4 |
Consolidated Statements of Stockholders’ Deficiency |
F-5 |
Consolidated Statements of Cash Flows |
F-6 |
Notes to Consolidated Financial Statements |
F-7 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Stockholders and Board of Directors of
Medical Alarm Concepts Holding, Inc.
We have audited the accompanying consolidated
balance sheets of Medical Alarm Concepts Holding, Inc. (the “Company”) as of June 30, 2015 and 2014 and the related
consolidated statements of operations, stockholders’ deficit, and cash flows for the years then ended. The Company’s
management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. Our audits of the consolidated financial statements include examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Medical Alarm Concepts Holding,
Inc. as of June 30, 2015 and 2014 and the results of their operations and cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going concern. As disclosed in Note 3 to the
accompanying consolidated financial statements, the Company had working capital deficit of $808,693, a stockholders’
deficit of $808,693, did not generate cash from its operations, and had operating loss for past two years. These
circumstances, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
Management's plans in regard to these matters are described in Note 3. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Paritz & Company, P.A.
Hackensack, New Jersey,
December 18, 2015
MEDICAL ALARM CONCEPTS HOLDING, INC.
CONSOLIDATED BALANCE SHEETS
|
|
June 30, 2015 |
|
June 30, 2014 |
ASSETS |
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
Cash |
|
$ |
1,335 |
|
|
$ |
7,673 |
|
Accounts receivable net of allowance of $9,123 and $7,906 |
|
|
98,659 |
|
|
|
36,952 |
|
Inventory |
|
|
67,995 |
|
|
|
22,839 |
|
Loan to employee |
|
|
30,000 |
|
|
|
— |
|
Prepaid expenses |
|
|
76,664 |
|
|
|
— |
|
Total current assets |
|
|
274,653 |
|
|
|
67,464 |
|
|
|
|
|
|
|
|
|
|
NON-CURRENT ASSETS |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
— |
|
|
|
461 |
|
Intangible assets, net |
|
|
— |
|
|
|
1,099,036 |
|
Total non-current assets |
|
|
— |
|
|
|
1,099,497 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
274,653 |
|
|
$ |
1,166,961 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Derivative liability |
|
$ |
— |
|
|
$ |
30,766 |
|
Accounts payable |
|
|
92,751 |
|
|
|
67,305 |
|
Deferred revenue |
|
|
368,864 |
|
|
|
380,397 |
|
Due to related party |
|
|
20,740 |
|
|
|
— |
|
Note payable - other |
|
|
86,294 |
|
|
|
5,000 |
|
Credit line payable - related party |
|
|
388,000 |
|
|
|
— |
|
Accrued expenses and other current liabilities |
|
|
126,697 |
|
|
|
194,025 |
|
Convertible notes payable - related party |
|
|
— |
|
|
|
25,908 |
|
Patent payable |
|
|
— |
|
|
|
2,500,000 |
|
Total current liabilities |
|
|
1,083,346 |
|
|
|
3,203,401 |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' DEFICIT |
|
|
|
|
|
|
|
|
Series A Convertible Preferred Stock: $0.0001 par value; 100,000 shares authorized; 688 shares issued and outstanding as of June 30, 2015 and 2014, respectively |
|
|
— |
|
|
|
— |
|
Series B Convertible Preferred Stock: $0.0001 par value; 62,500 shares authorized; 9,938 shares issued and outstanding as of June 30, 2015 and 2014, respectively |
|
|
1 |
|
|
|
1 |
|
Common stock: $0.0001 par value; 20,000,000 shares authorized; 6,998,676 and 5,623,676 shares issued and outstanding on June 30, 2015 and 2014, respectively |
|
|
700 |
|
|
|
562 |
|
Additional paid-in capital |
|
|
12,576,891 |
|
|
|
12,203,981 |
|
Stock to be issued |
|
|
28,000 |
|
|
|
— |
|
Accumulated deficit |
|
|
(13,414,285 |
) |
|
|
(14,240,984 |
) |
Total stockholders' deficit |
|
|
(808,693 |
) |
|
|
(2,036,440 |
) |
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
$ |
274,653 |
|
|
$ |
1,166,961 |
|
See accompanying notes to the
consolidated financial statements.
MEDICAL ALARM CONCEPTS HOLDING, INC.
Consolidated
Statements of Operations
|
|
For the year ended June 30, |
|
|
2015 |
|
2014 |
Revenue |
|
$ |
1,147,099 |
|
|
$ |
1,153,693 |
|
Cost of revenue |
|
|
366,702 |
|
|
|
324,503 |
|
Gross profit |
|
|
780,397 |
|
|
|
829,190 |
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
Selling expense |
|
|
305,738 |
|
|
|
212,133 |
|
General and administrative |
|
|
987,035 |
|
|
|
1,695,423 |
|
Total operating expenses |
|
|
1,292,773 |
|
|
|
1,907,556 |
|
Loss from operations |
|
|
(512,376 |
) |
|
|
(1,078,366 |
) |
|
|
|
|
|
|
|
|
|
Other (income) expenses |
|
|
|
|
|
|
|
|
Change in fair value of derivative instrument |
|
|
11,335 |
|
|
|
(1,514,947 |
) |
Gain from termination of patent agreement |
|
|
(1,476,196 |
) |
|
|
— |
|
Interest expense - related party |
|
|
8,436 |
|
|
|
22,320 |
|
Interest expense |
|
|
117,350 |
|
|
|
189,220 |
|
Total other income |
|
|
(1,339,075 |
) |
|
|
(1,303,407 |
) |
|
|
|
|
|
|
|
|
|
Income before income tax |
|
|
826,699 |
|
|
|
225,041 |
|
Income tax provision |
|
|
— |
|
|
|
— |
|
Net income |
|
$ |
826,699 |
|
|
$ |
225,041 |
|
|
|
|
|
|
|
|
|
|
Net income per common share - basic and diluted |
|
$ |
0.13 |
|
|
$ |
0.06 |
|
Weighted average number of common shares - basic and diluted |
|
|
6,206,090 |
|
|
|
3,787,467 |
|
See accompanying notes to the consolidated
financial statements.
MEDICAL ALARM CONCEPTS HOLDING, INC.
Consolidated
Statements of Stockholders’ Deficiency
|
|
Series A Preferred Stock |
|
Series B Preferred Stock |
|
Common Stock |
|
Stock to |
|
Additional Paid-in |
|
Deficit |
|
Total Stockholders' |
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
be issued |
|
Capital |
|
Accumulated |
|
Deficit |
Balance at June 30, 2013 |
|
|
688 |
|
|
$ |
— |
|
|
|
9,938 |
|
|
$ |
1 |
|
|
|
1,696,813 |
|
|
$ |
170 |
|
|
$ |
— |
|
$ |
9,127,788 |
|
$ |
(14,466,025 |
) |
$ |
(5,338,066) |
Conversion of convertible notes to Common Stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,123,930 |
|
|
|
212 |
|
|
|
— |
|
|
314,607 |
|
|
— |
|
|
314,819 |
Common Stock issued for repayment of Note payable - related party |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
36,250 |
|
|
|
4 |
|
|
|
— |
|
|
28,996 |
|
|
— |
|
|
29,000 |
Issuance of common stocks for services |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,543,669 |
|
|
|
154 |
|
|
|
— |
|
|
994,294 |
|
|
— |
|
|
994,448 |
Forgiveness of credit line |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
618,844 |
|
|
— |
|
|
618,844 |
Derivative liability classified to additional paid-in capital upon conversion of related convertible notes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
909,918 |
|
|
— |
|
|
909,918 |
Accrued interest and debt discount classified to additional paid-in capital upon conversion and forgiveness of debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
107,656 |
|
|
— |
|
|
107,656 |
Stock issued for cash |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
123,014 |
|
|
|
12 |
|
|
|
— |
|
|
76,888 |
|
|
— |
|
|
76,900 |
Stock issued for payment of interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
100,000 |
|
|
|
10 |
|
|
|
— |
|
|
24,990 |
|
|
— |
|
|
25,000 |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
— |
|
|
225,041 |
|
|
225,041 |
Balance at June 30, 2014 |
|
|
688 |
|
|
|
— |
|
|
|
9,938 |
|
|
|
1 |
|
|
|
5,623,676 |
|
|
|
562 |
|
|
|
— |
|
|
12,203,981 |
|
|
(14,240,984 |
) |
|
(2,036,440) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
— |
|
|
826,699 |
|
|
826,699 |
Issuance of common stocks for services |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,375,000 |
|
|
|
138 |
|
|
|
28,000 |
|
|
304,901 |
|
|
— |
|
|
333,039 |
Forgiveness of convertible note - related party |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
25,908 |
|
|
— |
|
|
25,908 |
Derivative liability classified to additional paid-in capital upon forgiveness of related convertible notes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
42,101 |
|
|
— |
|
|
42,101 |
Balance at June 30, 2015 |
|
|
688 |
|
|
$ |
— |
|
|
|
9,938 |
|
|
$ |
1 |
|
|
|
6,998,676 |
|
|
$ |
700 |
|
|
$ |
28,000 |
|
$ |
12,576,891 |
|
$ |
(13,414,285 |
) |
$ |
(808,693) |
See accompanying notes to the consolidated
financial statements.
MEDICAL
ALARM CONCEPTS HOLDING, INC.
Consolidated
Statements of Cash Flows
|
|
For the year ended June 30, |
|
|
2015 |
|
2014 |
Net income |
|
$ |
826,699 |
|
|
$ |
225,041 |
|
Adjustments to reconcile net income to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Common stock issued for services |
|
|
284,370 |
|
|
|
994,448 |
|
Common stock issued for interest |
|
|
— |
|
|
|
25,000 |
|
Change in fair value of derivative instrument |
|
|
11,335 |
|
|
|
(1,514,947 |
) |
Write-off of patent |
|
|
(1,476,197 |
) |
|
|
— |
|
Amortization of patent |
|
|
75,233 |
|
|
|
78,503 |
|
Non-cash interest expense |
|
|
— |
|
|
|
28,991 |
|
Bad debt expense |
|
|
1,217 |
|
|
|
7,906 |
|
Inventory markdown |
|
|
2,856 |
|
|
|
— |
|
Depreciation |
|
|
461 |
|
|
|
5,253 |
|
Change in operating assets and liabilities |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(62,924 |
) |
|
|
(33,249 |
) |
Inventory |
|
|
(48,012 |
) |
|
|
3,297 |
|
Prepaid expense |
|
|
(27,995 |
) |
|
|
32,661 |
|
Accounts payable |
|
|
25,446 |
|
|
|
(4,318 |
) |
Accrued expenses and other current liabilities |
|
|
(67,328 |
) |
|
|
20,524 |
|
Deferred revenue |
|
|
(11,533 |
) |
|
|
105,206 |
|
Net Cash Used in Operating Activities |
|
|
(466,372 |
) |
|
|
(25,684 |
) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Loan to employee |
|
|
(30,000 |
) |
|
|
— |
|
Net Cash Used in Investing Activities |
|
|
(30,000 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Proceeds from note payable - other |
|
|
81,294 |
|
|
|
5,000 |
|
Proceeds from issuance of common stock |
|
|
— |
|
|
|
22,500 |
|
Proceeds from credit line - related party |
|
|
388,000 |
|
|
|
— |
|
Advance from related party |
|
|
20,740 |
|
|
|
— |
|
Net Cash Provided By Financing Activities |
|
|
490,034 |
|
|
|
27,500 |
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH |
|
|
(6,338 |
) |
|
|
1,816 |
|
|
|
|
|
|
|
|
|
|
CASH AT BEGINNING OF YEAR |
|
|
7,673 |
|
|
|
5,857 |
|
|
|
|
|
|
|
|
|
|
CASH AT END OF YEAR |
|
$ |
1,335 |
|
|
$ |
7,673 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest expense |
|
$ |
113,250 |
|
|
$ |
125,000 |
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes |
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
Conversion of convertible notes to common stock |
|
$ |
— |
|
|
$ |
314,819 |
|
|
|
|
|
|
|
|
|
|
Common Stock issued for repayment of Note payable - related party |
|
$ |
— |
|
|
$ |
29,000 |
|
|
|
|
|
|
|
|
|
|
Derivative liability classified to additional paid-in capital upon conversion of related convertible notes |
|
$ |
— |
|
|
$ |
909,918 |
|
|
|
|
|
|
|
|
|
|
Issuance of common stock previously classified as stock to be issued |
|
$ |
— |
|
|
$ |
54,400 |
|
|
|
|
|
|
|
|
|
|
Forgiveness of credit line payable classified to additional paid in capital |
|
$ |
— |
|
|
$ |
618,844 |
|
|
|
|
|
|
|
|
|
|
Convertible note - related party and related derivative liability classified to additional paid in capital upon forgiveness |
|
$ |
68,009 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
Stock issued for services record as prepaid expenses |
|
$ |
48,669 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
Accrued interest and debt discount classified to additional paid-in capital upon conversion and forgiveness of debt |
|
$ |
— |
|
|
$ |
107,656 |
|
See accompanying notes to the consolidated
financial statements.
MEDICAL ALARM CONCEPTS HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 NATURE OF OPERATIONS
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.
NOTE 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.
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.
Cash
The Company considers all highly liquid investments
with maturities of three months or less at the time of purchase to be cash and cash equivalents.
Accounts receivable and allowance for doubtful
accounts receivable
MEDICAL ALARM CONCEPTS HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We have a policy of reserving for uncollectible
accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable. We extend credit
to our customers based on an evaluation of their financial condition and other factors. We generally do not require collateral
or other security to support accounts receivable. We perform ongoing credit evaluations of our customers and maintain an allowance
for potential bad debts if required. We determine whether an allowance for doubtful accounts is required by evaluating
specific accounts where information indicates the customers may have an inability to meet financial obligations. In these cases,
we use assumptions and judgment, based on the best available facts and circumstances, to record a specific allowance for those
customers against amounts due to reduce the receivable to the amount expected to be collected. These specific allowances are re-evaluated
and adjusted as additional information is received. The amounts calculated are analyzed to determine the total amount of the allowance.
We may also record a general allowance as necessary. Direct write-offs are taken in the period when we have exhausted
our efforts to collect overdue and unpaid receivables or otherwise evaluate other circumstances that indicate that we should abandon
such efforts.
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 recorded inventory markdown of $2,856 and $0 for the
year ended June 30, 2015 and 2014, respectively.
Property and equipment
Property and equipment includes furniture and
fixtures and office equipment which are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance
and repairs are charged to operations as incurred. Depreciation of furniture and fixtures and office equipment is computed by the
straight-line method (after taking into account their respective estimated residual values) over their estimated useful life of
seven (7) and five (5) years, respectively. Upon sale or retirement of office equipment, the related cost and accumulated depreciation
are removed from the accounts and any gain or loss is reflected in statements of operations.
Patent
MEDICAL ALARM CONCEPTS HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has adopted the guidelines as set
out in section 330-30-35-6 of the FASB Accounting Standards Codification (“ASC”) for patent costs. Under the requirements
as set out, the Company capitalizes and amortizes patent costs associated with the licensed product the Company intends to sell
pursuant to the Purchase Agreement and the Patent Assignment Agreements, entered into on July 10, 2008 and effective July 30, 2008,
over their estimated useful life. From July 30, 2008 to March 31, 2011, the patent cost was amortized over the period of six years.
The company changed the estimated useful life of patent from six years to twenty years. From April 1, 2011, the unamortized balance
of patent costs will be amortized over the remaining period of useful life. The costs of defending and maintaining patents are
expensed as incurred. Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.
Impairment of long-lived assets
The Company follows section 360-10-05-4 of
the FASB ASC 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 impairments of long-lived assets as of June 30, 2015 and 2014.
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.
MEDICAL ALARM CONCEPTS HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 ASC (“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 (i) certain freestanding
warrants that contain exercise price adjustment features and (ii) convertible bonds issued by foreign subsidiaries with a strike
price denominated in a foreign currency.
Fair Value of Financial Instruments
The Company follows paragraph 825-10-50-10
of the FASB ASC for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB ASC (“Paragraph
820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for
measuring fair value pursuant to GAAP and expands disclosures about fair value measurements. To increase consistency and comparability
in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes
the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest
priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable
inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
Level 1 Quoted market prices
available in active markets for identical assets or liabilities as of the reporting date.
Level 2 Pricing inputs other
than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting
date.
Level 3 Pricing inputs that
are generally observable inputs and not corroborated by market data.
The carrying amounts of the Company’s
financial assets and liabilities, such as cash, accounts receivable, inventory, prepaid expenses, 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 June 30, 2015 and 2014.
MEDICAL ALARM CONCEPTS HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. (See Note 9)
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 ASC 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 ASC. While amounts charged to customers for shipping products are included
in revenues, the related costs are classified in cost of goods sold as incurred.
MEDICAL ALARM CONCEPTS HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
The Black-Scholes option valuation model is
used to estimate the fair value of the warrants or options granted. The model includes subjective input assumptions that can materially
affect the fair value estimates. The model was developed for use in estimating the fair value of traded options or warrants. The
expected volatility is estimated based on the most recent historical period of time equal to the weighted average life of the warrants
or options granted.
Net income per common share
Net income per common share is computed
pursuant to section 260-10-45 of the FASB ASC. 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.
Cash flows reporting
MEDICAL ALARM CONCEPTS HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company adopted paragraph 230-10-45-24
of the FASB ASC for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating,
investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect
method”) as defined by paragraph 230-10-45-25 of the FASB ASC to report net cash flow from operating activities by adjusting
net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating
cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are
included in net income that do not affect operating cash receipts and payments. The Company reports the reporting currency equivalent
of foreign currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes
on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash
and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts
or payments in the period pursuant to paragraph 830-230-45-1 of the FASB Accounting Standards Codification.
Subsequent events
The Company follows the guidance in Section
855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company evaluates subsequent
events through the date when the financial statements are issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification,
the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through
filing them on EDGAR.
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
NOTE 3 GOING CONCERN
These consolidated financial statements are
presented on the basis that we will continue as a going concern. The going concern concept contemplates the realization of assets
and satisfaction of liabilities in the normal course of business.
The Company has working capital deficit of $808,693, did not generate cash from its operations, had stockholders’
deficit of $808,693 and had operating losses for past 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. 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.
MEDICAL ALARM CONCEPTS HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INTANGIBLE ASSETS
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 was 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 was not made on June
30, 2012. This agreement had been extended quarterly since June 30, 2012.
The patent was amortized over
its estimated useful life. Amortization of patent aggregated $75,233 and $78,503 for the year ended June 30, 2015 and 2014
respectively.
In
June 2015, the Agreement was terminated. The loan payable of $2,500,000 and unamortized balance of intangible asset of $1,023,804
were written off and a gain of $1,476,196 was recorded upon termination of the Agreement. The Company subsequently signed a new
agreement with patent holder on November 18, 2015. Based on the new agreement, the company has the ability to order and
sell the MediPendant® product utilizing the patent and pay $25 per unit purchased for license fee.
Patent, stated at cost, less accumulated amortization
consisted of the following:
|
|
June 30, 2015 |
|
June 30, 2014 |
Patent |
|
$ |
— |
|
|
$ |
2,500,000 |
|
Less: accumulated amortization |
|
|
— |
|
|
|
(1,400,964 |
) |
|
|
$ |
— |
|
|
$ |
1,099,036 |
|
NOTE 5. ACCRUED EXPENSES AND OTHER CURRENT
LIABILITIES
The following table presents accrued expenses
and other current liabilities.
|
|
June 30, 2015 |
|
June 30, 2014 |
Accrued expenses |
|
$ |
114,397 |
|
|
$ |
181,725 |
|
Other current liabilities |
|
|
12,300 |
|
|
|
12,300 |
|
Total |
|
$ |
126,697 |
|
|
$ |
194,025 |
|
NOTE
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. The Company recorded interest expense on the credit line of $22,320 for the year ended June 30,
2014. On December 10, 2013, the balance of credit line, including accrued interest, was forgiven. Since the credit line is from
a related party, the amount forgiven was recorded in additional paid-in capital. (See Note 8)
On
September 30, 2014, the Company entered into a line of credit with a company, 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 $8,436 for the year ended June 30 ,2015.
MEDICAL ALARM CONCEPTS HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - CONVERTIBLE NOTES PAYABLE
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 $0.002,
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.
During the year ended June 30, 2014, convertible notes with total face amount of $314,819 were converted pursuant to Global Settlement Agreement. (See Note 8)
On November 2, 2014, the holder of
convertible note informed the Company that it will no longer be seeking repayment of $25,908. Since the holder of convertible
note was a related party, the Company recorded the forgiveness of the debt and related derivative liability as additional
paid-in capital.
The following table summarizes the convertible
promissory notes movement of fiscal 2015 and 2014:
Balance at June 30, 2013 |
|
$ |
340,727 |
|
Issued |
|
|
— |
|
Converted |
|
|
(314,819 |
) |
Total |
|
|
25,908 |
|
Less: debt discount |
|
|
— |
|
Balance at June 30, 2014 |
|
|
25,908 |
|
Forgiveness |
|
|
(25,908 |
) |
Balance at June 30, 2015 |
|
$ |
— |
|
NOTE 8 – STOCKHOLDERS’ EQUITY
During the fiscal year ended June 30, 2014, 123,014 shares of common stocks were issued to investors for $76,900 cash. $54,400 was received during the year ended June 30, 2013 and was classified as the liability for common stock to be issued, which was included in accrued expense and other current liabilities at June 30, 2013 and reclassified to equity upon issuance of the shares.
On December 10, 2013, the Company entered into
a Global Settlement Agreement (the “Agreement”). Pursuant to the term of a Global Settlement Agreement (“GSA”)
among the Company, Biotech and the management team, as defined:
1. |
|
Biotech forgave any outstanding borrowings of the Company under the Credit Line referred to in Note 6 for no consideration. |
2. |
|
Outstanding convertible notes aggregating $314,819 were converted into 2,123,930 shares of the Company’s common stock. |
MEDICAL ALARM CONCEPTS HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. |
|
The management team agreed to forfeit its rights to future anti-dilution of its ownership position in exchange for 1,493,669 shares of the Company’s common stock. The shares issued were valued at $0.64 per share which is the market price in December 10, 2013 and recorded as stock compensation expense. |
Both parties also agreed on the following terms:
1) the management team agreed to modify its September 19, 2011 agreement with the Company giving up all anti-dilution rights, 2)
the Company agreed to take steps to increase the number of authorized shares to accommodate the debt conversions and would complete
a reverse split of its shares, 3) The Company would file a registration statement with the SEC, and 4) the Company would continue
to file past due periodic reports with the SEC on Forms 10-Q and 10-K in order to return the Company to full reporting status,
a process that is already well underway.
On February 5, 2014 the Company issued 50,000
shares of common stock to a shareholder as compensation for consulting services provided to the Company. Those shares were valued
at the quoted market price for total $38,500 and recorded as expense.
On February 5, 2014, the Company issued 36,250
shares of common stock to a related note holder as repayment of promissory note of $29,000.
On June 26, 2014, the Company issued 100,000
shares of common stock to a patent holder for payment of interest. (See Note 4)
During fiscal year ended June 30, 2015, 1,375,000
shares were issued as compensation to service providers, which were valued at fair market value on the date of issuance and amortized
over service period on a straight-lined basis.
NOTE 9 - DERIVATIVE 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.
During the year ended June 30, 2015, the
balance of convertible notes, $25,908, were forgiven (See Note 7) The fair value of derivative liability at the date of
forgiveness was added to additional paid-in capital.
MEDICAL ALARM CONCEPTS HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 – NOTE PAYABLE –OTHER
Note payable - Other consists of the following: |
|
As of June 30, |
|
|
2015 |
|
2014 |
Celtic Bank |
|
$ |
15,690 |
|
|
$ |
— |
|
On Deck Capital, Inc. |
|
|
70,604 |
|
|
|
— |
|
A vendor |
|
|
— |
|
|
|
5,000 |
|
|
|
$ |
86,294 |
|
|
$ |
5,000 |
|
On November 1, 2013, the Company issued a $30,000
promissory note to a vendor who provide monitoring services to the Company. The note is non-interest bearing and due on June 1,
2014. The note will be paid in six installment payments with $5,000 due on the first day of each month from January to June 2014.
Based on the note, all subscribers monitoring agreements owned or newly originated by the Company must be monitored by the note
holder until the terms of the agreement are satisfied. This note is guaranteed by the CEO of the Company. As of June 30, 2014,
unpaid balance was $5,000 which was paid in July 2014.
In June 2015, the company obtained a loan of
$75,000 from On Deck Capital, Inc. with interest at 55% per annual and due on June 2, 2016.
During the year ended June 30, 2015, the Company
obtained various loans from Celtic Bank with interest rate from 1% to 2.75% per month and due in six months from the borrowing
date.
NOTE 11 - RELATED PARTY TRANSACTIONS
Interest
expenses for credit line were $8,436 and $22,320 for the years ended June 30, 2015 and 2014, respectively, zero amount was paid
during the years ended June 30, 2015 and 2014. (See Note 6)
On December
10, 2013, the Company issued 1,493,669 shares of common stock to management team per Global Settlement Agreement. (See Note 8)
On June
14, 2013, the Company issued a $29,000 promissory note to a family member of the Company’s CEO. The note is non-interest
bearing and due on June 13, 2014. The note was converted to 36,250 shares of common stock on February 5, 2014.
On February 5, 2014 the Company issued 50,000
shares of common stock to a shareholder as compensation for consulting services provided to the Company. Those shares were valued
at the quoted market price for total $38,500 and recorded as expense.
On September 30, 2014, the Company
entered into a line of credit with Medi Pendant of 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 November 2, 2014, the holder of convertible note informed the Company that it will no longer be seeking repayment of $25,908. Since the holder of convertible note was a related party, the Company recorded the forgiveness of the debt and related derivative liability as additional paid-in capital.
On January 31, 2015, the limit on the line
of credit was increased to $500,000 with same interest rate and due date. As of June 30, 2015, outstanding balance under the line
of credit was $388,000. The company also agreed to issue 200,000 shares of common stock to one of the owner of MNY to exchange
for the increase of line of credit. These shares were value at the market value of $28,000 which was the fair market value at the
grant date and recorded as shares to be issued since those share were issued in the subsequent period.
During the year ended June 30, 2015, the Company’s
CEO advanced $20,740 to the Company. The amount is non-interest bearing and due on demand.
MEDICAL ALARM CONCEPTS HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 – INCOME TAX
The reconciliation of income tax benefit at
the U.S. statutory rate of 34% for the years ended June 30, 2015 and 2014 to the Company’s effective tax rate is as follows:
|
|
Year ended June 30, |
|
|
2015 |
|
2014 |
U.S. federal statutory rate |
|
|
34.00 |
% |
|
|
34.00 |
% |
State income tax, net of federal benefit |
|
|
9.99 |
% |
|
|
9.99 |
% |
Permeant difference – change in fair value of derivative instrument and non-cash interest expense |
|
|
0.60 |
% |
|
|
(296.14 |
%) |
Change in valuation allowance |
|
|
(49.59 |
)% |
|
|
252.15 |
% |
Income tax provision (benefit) |
|
|
0.00 |
% |
|
|
0.00 |
% |
The benefit for income tax is summarized as
follows:
|
|
Year ended June 30, |
|
|
2015 |
|
2014 |
Federal: |
|
|
|
|
|
|
|
|
Current |
|
$ |
— |
|
|
$ |
— |
|
Deferred |
|
|
284,932 |
|
|
|
438,568 |
|
State and local: |
|
|
|
|
|
|
|
|
Current |
|
|
— |
|
|
|
— |
|
Deferred |
|
|
83,720 |
|
|
|
128,862 |
|
Change in valuation allowance |
|
|
(368,652 |
) |
|
|
(567,430 |
) |
Income tax provision (benefit) |
|
$ |
— |
|
|
$ |
— |
|
The tax effects of temporary differences that
give rise to the Company’s net deferred tax liability as of June 30, 2015 and 2014 are as follows:
|
|
As
of June 30, |
|
|
2015 |
|
2014 |
Net operating losses carried forward |
|
$ |
4,416,080 |
|
|
$ |
4,784,732 |
|
Less: valuation allowance |
|
|
(4,416,080 |
) |
|
|
(4,784,732 |
) |
Deferred tax assets |
|
$ |
— |
|
|
$ |
— |
|
MEDICAL ALARM CONCEPTS HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 2015, the Company had approximately
$ 10 million of federal and state net operating loss carryovers (“NOLs”) which begin to expire in 2028. Utilization
of the NOLs may be subject to limitation under the Internal Revenue Code Section 382 should there be a greater than 50% ownership
change as determined under regulations.
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.
NOTE 13 - CONCENTRATION AND CREDIT RISK
Sales to one customer accounted for approximately
19% and 19% of the Company’s revenue for the year ended June 30, 2015 and 2014, respectively.
The Company had only two and one supplier during
the years ended June 30, 2015 and 2014, respectively.
NOTE 14 – SUBSEQUENT EVENT
On October 19, 2015, the Company issued 400,000 to two consultants for services performed per consulting agreements and 200,000 shares to one of the owner of MNY for compensation of increasing the line of credit to $500,000.
1. I
have reviewed this Restatement of Annual Report on Form 10-Kof Medical Alarm Concepts Holding, Inc. for the fiscal year ended June
30, 2015;
2. Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4. The
registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
b. Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated
the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
d. Disclosed
in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The
registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the
equivalent functions):
a. All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information;
and
b. Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
(18 U.S.C. SECTION 1350)
In connection with the Restatement of Annual Report
of Medical Alarm Concepts Holding, Inc. (the “Company”), on Form 10-K for the year ended June 30, 2015, as filed with
the Securities and Exchange Commission (the “Report”), Ronnie Adams, Chief Executive Officer and Chief Financial Officer
of the Company, do hereby certify, pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350), that:
1. The
Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.